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For readers who are tracking my 10 Clean Energy Stocks for 2009 portfolio, take note that I now think that SDS is a lousy hedge. So in the model portfolio I'm personally tracking, I replaced each dollar of SDS with $3 of cash and $2 short SPY, an ETF which tracks the S&P 500.

Because I'm tracking the portfolio as a way to see how well a reader would perform, I did the replacement at the closing prices on Feb 11th, the day the article where I explained why not to use doubleshort ETFs (and short, ultras, or triples, for that matter.)

Here's how the portfolio stood as of the close on February 12th:

Company TickerChange since 12/27/08Dividend & Interest
The Algonquin Power Income TrustAGQNF.PK+16.73%0.87%
Cree, Inc.CREE+42.83%
First Trust Global Wind Energy ETFFAN-6.42%
General ElectricGE-26.86%
Johnson ControlsJCI-20.90%
New Flyer IndustriesNFYIF.PK+2.14%0.77%
Trinity IndustriesTRN-23.87%
Warterfurnace Renewable EnergyWFIFF.PK+30.98%
-2x S&P Depository Receipts + 3x Cash3x $ - 2x SPY+2.92%
Net Change+2.91%

For comparison, the iShares S&P Global Clean Energy Index (NASDAQ:ICLN) is down 5.6% and the S&P 500 is down 4.3% over the same period. The reason that the 2x short + cash position is only up 2.92% instead of 8.6% is because of the underperformance of SDS.

(Here's the brief version: Suppose the underlying index starts at $10, drops $1 (10% of $10), and then to goes up $1 (11.11% of $9) for no net loss or gain. If you do the math, the corresponding short (x-1) or ultra (x2) ETFs will fall a net 2.2% over the same move, and the ultrashort (x-2) and the triple (x3) ETFs will fall a net 6.7%.)

Problems With Contango

The other reshuffle I did was in my real portfolio. A couple weeks ago, I wrote about why I bought OIL, a tracker for crude oil in the futures markets. A reader pointed out that this (and most other oil tracking ETFs) suffer when the futures market is in contango (i.e. the futures prices are higher than the spot price, as they are now.) Although oil futures market contango is a strong sign that price will rise, I decided that expected gains weren't enough to tempt me to stay in the market, so I sold my position.

Now that crude has dropped further, I'm considering a replacement position in USL, which tracks a basket of futures contracts over the next 12 months, rather than just the closest futures contract tracked by OIL (the same reader brought this one to my attention.) United States 12 Month Oil Fund (NYSEARCA:USL) is likely to lose less money than OIL when the market is in contango, because the futures market flattens out as you go out further into the future. But I'm still on the fence with this one.


Source: ETF Shuffles in My Portfolio