So we nailed both of these thesis yet have benefited very little. It is becoming very apparent that due to the rebalancing (daily) in these instruments they are useless for almost anyone other than daytraders or people who hold them for 1-5 days. They are constructed poorly. Someone holding SRS or SKF should of been able to buy it in August 2007, go on a 15 month vacation to Tahiti, and be up 50-100%+ at this time. Instead you are down severely on one and up way below potential on the other? What's the point?
We are sort of stuck because I cannot short individual names in Marketocracy.com so all I have are the short ETFs to provide downside exposure. (people trading in tax protected accounts, i.e. rollover IRAs - have the exact same issue since shorting is not allowed) They work great on the days the market falls off a cliff but each day the market goes sideways they basically act like an option - you get time decay. So much like an option you need it not only go in the right direction but in a set amount of time; that's terrible for a long term hedge. It would be far superior to short against the index these instruments are betting against so that you can actually benefit over the long run. I'm not sure if the non "Ultra" (2x) instruments work the same way (the 1xs) - this is something I have to look at during the next week. With how poorly these 2x ETFs work, if the 1x ETFs (non Ultra) don't have the same weaknesses, for purposes of someone like me who uses them as a hedge and wants to hold them for more than 5 days, they might be a better choice.
On top of all that, they are like a mutual fund and today declared distributions... cripes.
- ProFunds Group, the world’s largest manager of short and leveraged funds,1 has announced fourth quarter income dividend distribution declarations for its ProShares ETFs. The firm expects dividend distributions for 52 of its 76 ETFs. Capital gain distributions for 35 of the firm’s ETFs were announced earlier today.
- Distributions reduce the net assets of each of the affected ETFs as of the close of business today and the ETFs will trade ex-dividend tomorrow. Each portfolio’s exposure to its benchmark index will be adjusted today to reflect this reduction in assets.
Long Ultrashort Real Estate, Financials in fund; no personal position
6 comments:
I prefer ETN's like the DTO and DXO, which apparently don't suffer from the time decay associated with options. Juxtapose these two investments with proshares' DIG and DUG and it is clear that ETN's are superior.
yup, horrible to hold longer term. unfortunate really. there are some non levered short etf's, SH for short s&p, but its still proshares so need to read the prospectus to make sure this one accurately tracks (don't know what a non-levered one wouldn't though).
Thanks for this reminder about the problems with these Proshares funds. I had been thinking of buying TBT - the Ultrashort long bond fund, since treasuries shouldn't have the volatility of real estate or financials TBT seems like an especially useless way to play this theme. Better to just short TLT, or to play a dollar devaluation theme via bonds denominated in stronger currencies or the foreign currencies themselves.
Its pretty simple, they all have negative gamma. You are shortest at the bottom and longest at the top.
I disagree with the argument that they should be buy and hold instruments. That is what shorting stocks are for. The instruments provide excellen hedging vehicles because the negative gamma gives a long short portfolio a bit of a momentum tilt.
I just think it's a misconception that these are not doing their job (not that you have this misconception). The daily reruns are actually quite reliably close to their targets, it's just a leverage problem that the average investor does not understand. If you want to double short an index without gamma, short the double longs.
also, forgot to mention. The single shorts work the same way, still negative gamma, just less of it.
There is nothing wrong with the ETFs, but plenty of things wrong with people who can't read a prospectus and understand the PURPOSE of these funds. They leveraged shorts are not mutual funds.
Cramer and the article writer are wrong. These leveraged short funds are not for buying and going to Tahiti and coming back to see profits. they are for DAILY performance. I traded SKF several times in the past 12 months for very impressive gains. I never held it longer than one night AT MOST. They are not for holding.
It says right on the page for SKF: DAILY PERFORMANCE.
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