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Chris DeMuth Jr.
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"It's not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it - who look and sift the world for a misplaced bet - that they can occasionally find one." - Charlie Munger I look... More
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Comments (8)
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  • jlb
    , contributor
    Comments (75) | Send Message
     
    Mr DeMuth,

     

    The short TMF trade worked well during 2013. Yet, its relative performance did not produce any excess returns as a result of the re-balancing flaw in its construct.
    Yahoo finance data reflects the following 1 year total returns through end November:
    TMF: -40.17%
    TLT: -13.92% (unleveraged version)
    Seems holding short three times TLT would have produced a worse
    result that shorting TMF
    What say you?
    11 Dec 2013, 09:19 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (5641) | Send Message
     
    Author’s reply » It just needs more time to really work. Over 3-5 years, I think TMF will under perform, especially relative to the long bond's yield. Even a few bps would be significant.
    11 Dec 2013, 09:31 AM Reply Like
  • jlb
    , contributor
    Comments (75) | Send Message
     
    If you want to capture the few bps underperformance over 3-5 yrs without taking a view on the direction of L-T rates, which I think is your
    proposition, the corresponding positions that need to be held would be significant before the result contributes meaningfully to overall portfolio performance, no?
    11 Dec 2013, 09:41 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (5641) | Send Message
     
    Author’s reply » I want the under performance of something that I also think is expensive.
    11 Dec 2013, 09:54 AM Reply Like
  • jlb
    , contributor
    Comments (75) | Send Message
     
    I understand your comment to mean you a want to be short L-T rates anyway?
    If this is true and a long period of rising L-T is on hand, then simply shorting TLT would be fine. The excess returns as a result of the flawed construct works against you in a strong upward L-T rate trending market in as a short in TMF
    11 Dec 2013, 10:13 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (5641) | Send Message
     
    Author’s reply » Simply shorting TLT would probably work too.
    11 Dec 2013, 10:15 AM Reply Like
  • jlb
    , contributor
    Comments (75) | Send Message
     
    The evidence of the underperformance of being short TMF vs being short TLT in a stong higher L-T rate trending market environment is starting to show in the 1 year total returns I previously noted. Thus your thesis regarding being short TMF, under the present and your expected market conditions, is flawed.
    11 Dec 2013, 10:36 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (5641) | Send Message
     
    Author’s reply » Well then I will have to come up with something new for next year. I'll report back by New Year's.
    11 Dec 2013, 10:42 AM Reply Like
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