Traders who think the value of the S&P 500 (SPY) when priced in gold is set to decline can tap a sophisticated exchange traded fund to profit.
FactorShares 2X Gold Bull/S&P 500 Bear (NYSEArca: FSG), which was launched earlier this year, rises when the price of gold outperforms U.S. stocks. It has a management fee of 0.75%.
The S&P 500 is sitting below where it stood in 2000 after two major corrections — the dot-com crash and the credit meltdown in 2008. However, the index’s performance is even worse when priced in gold.
The yellow metal has enjoyed a multiyear bull market with momentum really picking up after the credit crisis and the Federal Reserve’s quantitative easing programs to support the U.S. economy. The U.S. dollar has been in a downtrend since the middle of 2010, although it has firmed a bit the past three months.
The ETF establishes a long position in gold futures and a short position in the S&P 500 eMini to deliver a return of the daily differential between the two, according to manager FactorShares.
“Investors who believe gold will increase in value relative to large-cap U.S. equities in one day or less might be interested in this relatively new product,” it says, adding the ETF is the only product long gold and short S&P.
FactorShares 2X Gold Bull/S&P 500 Bear fell on Thursday as the Dow surged over 100 points and the price of gold traded below $1,600 an ounce.
The ETF is a “spread-betting ETF that profits from gold rising in value relative to the S&P 500,” said Morningstar analyst Samuel Lee in a profile. “The fund aims to return twice the spread by using lots of leverage. It gains two-times long exposure to gold and two-times short exposure to the S&P 500 via futures contracts, for a gross leverage ratio of 4:1.”
He said the ETF is highly leveraged and volatile. “Like virtually all leveraged funds, this product is suitable only for sophisticated traders willing to monitor their positions and trade daily.”
Since the ETF “resets” daily, the leverage may not hold up over periods longer than one day.
Other “spread” ETFs managed by FactorShares include FactorShares 2X S&P500 Bull/USD Bear (NYSEArca: FSU), FactorShares 2X S&P500 Bull/TBond Bear (NYSEArca: FSE), FactorShares 2X Oil Bull/S&P500 Bear (NYSEArca: FOL) and FactorShares 2X TBond Bull/S&P500 Bear (NYSEArca: FSA).
FactorShares 2X Gold Bull/S&P 500 Bear - (Click chart to enlarge)