ArabianMoney bear ETF portfolio up 57% in August
Posted on 24 August 2011 with 3 comments from readers
The ArabianMoney newsletter’s bear market ETF portfolio gained 57 per cent in August while across the world stock markets tanked losing trillions of dollars for investors.
In the latest edition of the newsletter today the publication reviews the outlook for its bear ETF portfolio (which is available only to subscribers, click here to subscribe, new subscribers will also get the latest issue). There is obviously the warning that if global markets rally then the bear ETF portfolio will fall.
Bear market ETFs
Bear market ETFs are investment instruments that track key stock market indexes and deliver the inverse of their daily performance, and some of these instruments include a leverage of two to three times, making them rather like hedge funds delivering geared performance, though with the same risk of a leveraged downside.
The newsletter cautions against large investments in these instruments that are designed to be held for relatively short periods to capture high market volatility. They are best seen as hedging large exposures to assets likely to fall in value, like ordinary stocks in a bear market or even precious metals.
However, the bear market ETF portfolio demonstrated its performance in August and ArabianMoney is not expecting a very good autumn for global stock markets. Is anybody still feeling optimistic?
It takes a true contrarian like the legendary Dr Marc Faber to argue that there are now too many bears so that might be a sign that pessimism is getting overdone (click here).
Falling markets
On the other hand, the Moody’s downgrade for Japan and slump in German business confidence today is just the latest in a stream of bad news coming out of the major economies. And a fall back into recession is just not yet discounted by global stock markets, leaving room for a substantial move to the downside.
We also feel that autumn 2011 is not going to be a repeat of last year with QE from the Fed sending markets skywards. This autumn the big issues are outside the Fed’s control and the US economy looks somewhat benign in comparison to the looming sovereign debt crisis of the eurozone and the Asian economic slowdown.
If you agree with this assessment and are still long in the stock market, think of bear market ETFs as a protection policy against what increasingly looks like the inevitable shake-out.
3 Comments posted by readers:
Congrats, Peter!
My portfolio, which includes large short positions, was up significantly also . . . until 21 Aug 2011. But my hedges and options are in place to minimize the damage.
I wonder how many readers have the financial sophistication to understand short ETF’s, let alone the hedging strategies mentioned by Obewon. I for one do not feel confident in this area.
Financial education is something that Joe Public desperately needs. There are thousands of books and web sites out there, but where does one start?
Ed Note: sign-up to the Daily Reckoning’s 5-minute forecast for free.
@ philcu:
Peter gave you a good suggestion. Addison Wiggin’s 5 minute forecast is a free newsletter that comes to your email inbox every afternoon; he doesn’t offer advice on hedging, but he occasionally discusses short positions. I read it daily.
Another place to obtain some free investment advice is from Martin Weiss’ web site. Go here:
http://www.moneyandmarkets.com/america%E2%80%99s-largest-candidate-for-bankruptcy-46993
At Weiss’ site, he writes a commentary at least once per week (like the one referenced above), and has about 5 other guys at that site who write commentaries as well. The only ones that I pay attention to there are Weiss himself and Mike Larson, who is very sharp.
A few weeks ago, Larson recommended shorting the financials (a good recommendation, in my opinion; I shorted them back in April or May). As you can see if you look at the performance of financials (XLF is the SPDR Select Financials – take a look!), they have performed very poorly, and will do even worse in the months ahead, since all the big global banks are insolvent. As I mentioned in another ArabianMoney.net blog, I like the ETF SEF; it simulates the inverse of the financials.