TrueShares Equity Hedge ETF (ONEH)

The TrueShares Equity Hedge ETF (ONEH) holds a broad, diversified portfolio of US equities and layers on top a continuous put-option hedge — contracts that pay off if stocks decline. The strategy is a trade-off: sacrifice some upside gain in exchange for cushioning against sharp drawdowns. It appeals to investors uncomfortable riding out the full volatility of stock markets but unwilling to shift entirely into bonds or cash.

The structure: equities plus puts

At its core, ONEH is a long equity portfolio — holdings in US companies across sectors, with a tilt toward liquid, mega-cap names. Alongside these holdings, the fund systematically buys put options on a broad equity index, typically covering a percentage of the portfolio’s notional value. A put gives its holder the right to sell a stock (or an index) at a fixed price; if the market falls, puts gain in value, offsetting losses in the underlying equities.

The fund rebalances this hedge regularly — buying new puts as old ones expire, maintaining a consistent level of protection. This is not a one-time hedge; it is an ongoing operational mechanism requiring steady purchases of puts and acceptance of their decay in value when markets are flat or rising.

Costs and the protection trade-off

Put options are insurance, and insurance costs money. When you buy a put, the seller — typically a derivatives dealer — prices in the probability and magnitude of a decline, plus a profit margin. That cost reduces the fund’s net return compared to an unhedged equity portfolio. In years when stocks soar, ONEH will trail unhedged peers by the cost of the puts (often 1–3% annually, depending on market volatility and the strike prices chosen). In years when stocks crash 20–30%, the puts pay off and ONEH’s loss is much smaller — maybe 5–15% — a meaningful difference.

The expense ratio reflects both the cost of managing the equity portfolio (typically modest for a diversified blend) and the steady expense of maintaining the hedge. Depending on market volatility conditions when the puts are purchased, the total cost can be 0.60–0.90% annually or higher.

What makes the hedge work and when it fails

Put protection is most valuable in sharp, sudden crashes — the kind that happen in 2008, 2020, or during geopolitical shocks. A fund hedged at those moments sees its puts gain, offsetting equity losses. The hedge is less useful in slow, grinding bear markets where valuations compress over months; puts are time-limited contracts, and rolling a hedge through a long downturn burns capital on successive purchases.

The hedge also depends on the assumption that put options — priced in a liquid derivatives market — are reasonably fairly valued. In extreme crises, when liquidity dries up or counterparty risk spikes, option prices can become distorted, and a put hedge might not perform as intended. The 2008 financial crisis saw moments when hedges “gapped” — the underlying fell so fast that puts could not be exercised at their stated strike, leaving gaps of unprotected downside.

Additionally, if equity volatility drops for years — a prolonged period of calm — the fund quietly bleeds capital buying puts that never pay off, compounding underperformance.

Who ONEH is for

ONEH appeals to investors in a specific frame of mind: they want stock market returns but are psychologically or operationally unable to tolerate a 30–40% drawdown. Perhaps they are near retirement and cannot afford to see their portfolio halved. Perhaps they are disciplined enough to rebalance and buy during crashes, but their family or board would force them to sell at the worst moment if the account were fully exposed. Perhaps they simply believe that the utility of protecting against catastrophic loss exceeds the cost of a steady insurance premium.

For buy-and-hold index investors with a 20+ year horizon and the stomach for volatility, an unhedged fund is likely more efficient. The long-term equity risk premium is large enough to overcome the cost of the hedge. For someone uncomfortable with volatility, ONEH is more honest than a 60/40 stock-bond portfolio; it keeps you in equities but with shock absorbers.

Mechanics and volatility

On normal days, ONEH behaves like a diversified equity fund — it tracks the broad market. In a 5% rally, it lags slightly (the drag of put costs). In a 5% decline, it declines less sharply (the puts offset some loss). In a 30% crash, the puts deliver substantial protection and ONEH’s decline is much gentler.

The fund is not immune to volatility; it still moves with the market. Its volatility is simply lower than an unhedged equity portfolio — typically 40–60% of the volatility of the broad stock market, depending on the hedge ratio chosen.

How to research ONEH

Start with TrueShares’ prospectus and fact sheet, which detail the equity holdings, the put-option strategy, and the current hedge ratio (what percentage of notional value is protected). Understand whether the puts are always at-the-money (directly protecting the current level), out-of-the-money (protecting only against large declines), or rolling across a range. Check the fund’s drawdown history: how much did it decline in 2020, 2022, and 2024? Compare that to the broad S&P 500 during the same periods — you should see ONEH’s drawdowns meaningfully smaller.

Examine the fund’s returns in calm years (like 2017, 2023) versus volatile years (2022, 2024). The fund should underperform in calm years and outperform in crashes. If you see the opposite pattern, something is amiss.

Finally, ask yourself the core question: is the psychological relief of softer drawdowns worth the steady drag on returns in strong years? If you are already disciplined enough not to panic-sell in crashes, a cheaper, unhedged fund is mathematically superior. If you know your own behaviour and believe you would sell at the bottom without protection, ONEH’s cost is a reasonable price for preventing that mistake.