Important Updates for Investors
Carla Pasternak's Premiere Issue of High-Yield International Just
Released
Income expert Carla Pasternak's debut issue of High-Yield
International covers a Taiwanese manufacturer yielding 9.5%... a
rare Mexican monopoly yielding 13.4%... and other top-performing
investments yielding up to 19.0%.
Government's Biofuel Timetable Could Spell +15,900% Growth
+15,900% growth might seem far-fetched... but it's not. In fact, it
is mandated by law. And I've identified the ONLY stock positioned to
capture this growth.
The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
|
|
|
|
Protect Your Portfolio Now with Short ETFs |
Published:
March 20, 2009
Just a few years ago, investors interested in profiting from a
downturn in a specific corner of the market had to borrow shares from their
broker, short individual companies -- and then hope they didn't pick a stock
that went against the grain and moved higher. But now, betting against
banks, small-cap stocks, or even entire market averages is just one
convenient ticker symbol away.
So, what exactly is this revolutionary new
way to short the market? It's done by using an inverse exchange-traded fund (ETF).
For the most part, I haven't placed terribly much emphasis on
inverse funds in the past. After all, I'm generally a long-term
investor, and ultimately the market goes up far more than it
goes down. However, there are certainly times when this group
can be very appealing, particularly in this market environment.
ETFs: A Brief Overview
Before we talk about the hedging advantages of inverse ETFs, let's quickly
review what ETFs are, and how they work.
Exchange-traded funds are
securities that closely resemble index funds, but can be bought and sold
during the day just like common stocks. These investment vehicles allow
investors a convenient way to purchase a broad basket of securities in a
single transaction. Essentially, ETFs offer the convenience of a stock along
with the diversification of a mutual fund.
From a humble start in the early 1990s, the ETF business has exploded, particularly
over the past several years. There are now over 700 ETFs with $450 billion
in assets.
ETFs boast several major advantages over mutual funds and common stocks,
including diversification, flexibility, low cost, liquidity, and
tax efficiency.
Going Short the Smart Way
Inverse ETFs (or short ETFs) operate on the same basic
principles, except they are designed to move in the
opposite
direction of an underlying index -- meaning shareholders actually profit
when the benchmark tanks. In other words, these funds were
made for
markets just like this one -- the lower the market retreats, the higher
these funds advance.
But it doesn't just stop there. Some ETFs can even return double the inverse
of what the market is doing. Let's say you buy shares of the UltraShort S&P
500 ProShares ETF (SDS). If the S&P 500 drops -5%, then SDS gains +10%.
Keep in mind, these funds compound daily, so if you invest for
longer (a week, a month, a year) the returns won't line up.
These ultra-short funds
are able to double the inverse performance of indexes by using leverage. The math doesn't always
work out exactly, but you can usually expect it to return double the inverse
within a reasonable range. The tradeoff, however, is that these funds can be
incredibly volatile, and if you are wrong you lose twice as much -- so only
consider this if you think you'll have the stomach for it.
Think of inverse ETFs as a type
of insurance policy for your portfolio. In other words,
investing a modest amount in one of these funds can be a useful
way to protect profits in certain asset classes or simply hedge
against further market declines. And like any insurance premium,
you hope it's never needed; ideally, the market reverses course
and you end up realizing a small loss on the position that is
more than offset by gains elsewhere.
But the events surrounding this recent downturn should clearly
illustrate that sometimes unexpected circumstances can materially impact
your portfolio, in which case an inverse fund can help soften the blow... and
in some cases, even generate enormous profits.
For example, on September
30th, four days before the Dow went sub-10,000, I sent a special newsflash
to my ETF Authority readers identifying 14 securities that could
skyrocket as the market heads south.
As you can see, most of these have done exactly what they were designed to do in this
rough market:
|
Inverse ETF |
Gains/Losses since I flagged these ETFs less than 6
months ago* |
|
UltraShort Basic Materials (AMEX: SMN) |
+82.3% |
|
PowerShares DB Oil 2X Short (NYSE: DTO) |
+401.4% |
|
UltraShort Oil/Gas ProShares (AMEX: DUG) |
+6.13% |
|
UltraShort MSCI Emerging Mkts. (AMEX: EEV) |
-35.1% |
|
UltraShort Semiconductor (AMEX: SSG) |
+27.5% |
|
UltraShort Russell Mid-Cap (AMEX: SDK) |
+68.85% |
|
UltraShort FTSE/Xinhua China (AMEX: FXP) |
-56.41% |
|
UltraShort MSCI Japan (AMEX: EWV) |
+25.45% |
|
UltraShort Tech. ProShares (AMEX: REW) |
+46.07% |
|
UltraShort Russell 1000 Growth (AMEX: SFK) |
+64.98% |
|
Rydex Inverse 2X S&P Mid-Cap (AMEX: RMS) |
+87.65% |
|
Short MSCI EAFE ProShares (AMEX: EFZ) |
+37.8% |
|
UltraShort Industrials ProShares (AMEX: SIJ) |
+143.77% |
|
UltraShort S&P 500 ProShares (AMEX: SDS) |
+84.12% |
|
*Source: Bloomberg. Total returns from 9/30/08
- 3/5/09
You may think you've missed the boat on short ETFs, but think again. With
the market coming off of depressing lows, we may now may be experiencing a
"dead cat bounce," with the market rallying in an attempt to form a new
bottom.
With all this in mind, readers might want to consider adding an inverse fund
or two to help smooth out some of this unprecedented market volatility.
Good Investing!
Nathan Slaughter
Chief Investment Strategist -- The ETF Authority
StreetAuthority.com
839-K Quince Orchard Blvd.
Gaithersburg, MD 20878-1614
P.S. If you'd like to learn more about how to use ETFs to
generate profits in ANY kind of market, I encourage you to
check out my ETF Authority newsletter by
visiting this link.
Disclosure: Nathan Slaughter
does not own shares of any of the securities mentioned in this article.
|
|
Investing Doesn't Get Any Easier Than This |
Stock picker Amy
Calistri's strategy is as simple as investing gets -- just one idea
a month designed to make money in today's market. Invest this way
and you don't have to worry about oil prices, automaker bailouts, or
what the Fed is up to -- because every "bad" economic development
actually helps some investment or another.Your investing life can
get a lot simpler -- starting today.
Go here to learn about Amy's simple investing strategy.
|
|
|
