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About a month ago FactorShares listed five spread ETFs. Each one tracks the spread between two asset classes and levers the result times two, targeting a daily result. I wrote about them for TheStreet.com when they first came out with a sort of I don't know what to make of them conclusion.

FactorShares is presenting them as a potential low volume, low correlation, absolute return sort of a thing. The volume on them is very low which either means that the market does not know what to do with them either, or the people who actually want to trade the long crude/short SPX spread are continuing to do so in the same manner they did before the FactorShares ETF came out.

click to enlarge

The results of the five vary but FOL is up 20% on the month (through Tuesday) and FSU is up 13.9% versus 3.1% for the S&P 500 and I would note the other three are slightly positive. FOL is long crude/short SPX and FSU is long SPX/short USD and again both are 2X.

Strategically there are several moving parts here. There can be no certainty that the dynamics between oil and stocks that lead to FOL going up 20% will persist. In fact it is more likely that the relationship between the two will change all the time. The long stock/short treasury fund (NYSEARCA:FSE) could be on the verge of doing something meaningful based on how people have couched the Fed's press conference. Likewise the long gold/short SPX fund (NYSEARCA:FSG).

Further complicating this is that no matter the correlation right now between any of these funds and straight equity exposure, next week the correlation dynamics could be completly different for any reason at all which is to say possibly no reason at all. So again, what, if anything, should be done with these?

The above paragraph has guesses about two funds that could become more relevant. Certainly it would not shock anyone if we saw more volatility there, so is that what these are about? Maybe so. It is very plausible that at some point bonds will get hit hard and stocks would not need to go up for FSE to go up a lot.

I am generally favorably disposed to layering absolute strategies, in moderation, into a portfolio. Adding FSE because I think now might finally be the time that treasury bonds start to roll over is a little thin in terms of justification but this could make for a fine speculation (not my type of trade). If these interest you at all then you should also look at the Nasdaq Alpha Indexes which I wrote about a few months ago. For now these appear to only trade as index options but I would certainly suggest taking the time to learn about both if I were really interested in either. And at some point in the future I might be interested.

My wife took this picture yesterday during the Bernanke presser. For how little bite there was in questions I'd have been better off hiking with her.

Source: FactorShares ETFs Might Actually Be Working