Comments on Fund My Mutual Fund: More Proshares UltraShorts Tomfoolery

Colin, why do you believe URE is down 87% if not f...

2008-12-29T02:06:00.000-05:00

Colin, why do you believe URE is down 87% if not for a structural issue?

I am sure UYG would have similar patterns although I did not look at it.

Whatever the case it seems the better way to bet AGAINST a sector is not to buy the ultrashort (which would be the inclination) but short the double long - they have returned (over time) what you'd expect to get from the Ultrashort - the irony of it all.

I'm still not quite sure how these confuse smart p...

2008-12-29T01:11:00.000-05:00

I'm still not quite sure how these confuse smart people. This "error" is simply a gamma effect. You are shortest as these rise (the ultrashorts), and least short as they fall. Also, contrary to your analysis, the ultralong do not have this effect.

Thanks Andrew - feel free to come and comment or e...

2008-12-28T21:46:00.000-05:00

Thanks Andrew - feel free to come and comment or email me when you have some commentary - I'll post anything their team has to say.

Yes some of the recent capital gains cloud the performance in the last week but that explains about 10% of the issue; the other 90% has been a while coming. I also agree that they saved my bacon in parts of Sep - Nov 2008 but they should not track this poorly over time. I was expecting to lose a portion of my gains, maybe a quarter, maybe a third over time due to the compounding issue. This is a whole different galaxy from that.

They basically act as short dated options, which carry extreme risk and many times expire worthless - in my book.

Blue, shorting individual names is the way to go... I am restricted with that in my tracking account and of course anyone who trades in a retirement account, like I do has very little option on the short side. I was hoping these things would bring a new day and age for us who like to hedge but it's poor for anything but short term movements and preferably in violent markets. They sap net worth every other time frame.

Good info Mark. I realized early on in the year th...

2008-12-28T21:33:00.000-05:00

Good info Mark. I realized early on in the year that FXP was broken. I still gave it a few chances on last minute buying to close out the market and even during some of the very volatile sell offs after Oct. FXP just refused to appreciate. Fidelity also killed my shorting ability on ALL efts starting in Oct. I had to step away from trading these things as the sell offs were so violent on the smallest index gains. I'm putting a DO NOT TOUCH sign on SRS and SKF unless we get another massive panic selling day. Lately VNO short has paid off way more than SRS long.

Good info and this is an area that needs to be add...

2008-12-28T21:00:00.000-05:00

Good info and this is an area that needs to be addressed. Some of the recent lack of performance is potentially due to the large amount of cap gains they had been planning to distribute.

If you look at the tracking errors for the Long and short, you will notice that the real problems started in October. Whether the lack of shorts or excess volatility was the problem is anyone's guess right now, but these work well for short term hedging.

I do agree that the last few weeks have shown an odd sort of gap and as such we have been concerned. Now, looking at other options for hedge. But, they did hold our portfolios up during darkest hours....

I will provide you some detail on what I find once it become available.

Also I am planning to have a ProShares exec/management on TDI Podcast to explain more...

Andrew Horowitz
The Disciplined Investor