Ultrashort Emerging Markets Should Come with a Warning Label

Ultrashort Emerging Markets (EEV) should have a warning label on it; we were "fortunate" to have a 0.1% stake in it Wednesday but going back toWednesday 's discussion about how asset allocation is everything - just having this hedge on Wednesday alone can cost you nearly 40%. I routinely carry this as a 3-4% stake. You can see it's doubled earlier this month in under 2 weeks, than in the past few sessions nearly been halved. Yowsers.

I'm spending a lot more time with these ETFs rather than individual companies since everything is so random on an individual company basis; and as I look what to rebuy to begin rehedging, I was shocked to see the price back in the $110s (or $100s) when I saw it Monday in the $170s.

p.s. maybe we'll call this the Volkswagen bottom. It has been so unrelenting easy to be a short for so long - for once something blew up in their face on a massive scale. Too soon to tell.

Disclosure: Long Ultrashort Emerging Markets in fund; no personal position

Comments

[Alan Young:]

If you are trying to profit from the decline of already-beaten-down EMs, shame on you. EEV is a great cost-effective way to hedge a long position in selected EM stocks or regional funds. Wednesday's EM rally was long overdue, and more of the same should be expected.

2008 Oct 30 03:02 PM

[Kelvinator:]

Perhaps the warning label should read: "WARNING - Always set a trailing percentage stop order when buying this ETF". Then when the fund peaks and drops 40% one day, then drops 25% the next day, you will get out with some of your gains. In this highly volatile market, this is more of a trading play than a buy and hold investment. Sure, you will pay short term capital gains rate, but if you make 100% in two weeks, you can afford it. Then wait a few days and do it again. I have no shame about making trading profits. Disclosure: I am accumulating EEV.

2008 Oct 30 05:13 PM

[Kinnick:]

Bought it today for the 4th time, will sell it again high. This thing spikes like crazy at the least dip in the emerging markets, so you have to pay attention and take profits at a comfortable level. This is a trade, not an investment, but you can clear 40-60% in 2-3 days. Seems to bounce around between 100-180. Buy low, sell high.

If you think today was the absolute end of the volatility and we're smooth sailing from here on out, then avoid it. If you think the last two days were a bear market rally and there may be a selloff or more pain to come, this is a great play.

2008 Oct 31 03:25 AM

[NOWHEREMAN:]

is there a corresponding ultralong EM ETF? I was going to go with EMF, but ran across this article.

Buy when there is Blood in the Streets, most EMs have losses almost twice that of the US, the carnage is much deeper.

2008 Oct 31 01:59 PM