jgpietsch

China Rebalancing ETF Pair Trade

Recognizing that this was a controversial post based on SeekingAlpha.com commentary, here is a follow through post reporting how the hypothetical China Rebalancing Pairs Trade would have performed through yesterday's close -- a) since posted on the morning of October 11th; and, b) since the FXI's short-term moving average first reversed. These results assume equal dollar weightings and no commissions.

a) Since Posted (10/11):

> Short CAF/ Long EWH +14.9%
> Short FXI/ Long EWH -00.1%

b) Since First FXI 3-Day MA Down Turn (10/22):

> Short CAF/ Long EWH +8.0%
> Short FXI/ Long EWH +5.4%

A proposed change by the Chinese government to allow share classes to float together no doubt helped significantly. A couple "comments on the comments:"

1) Note how the use of the long/short combination reduced the risk of "being early" with this trade idea (FXI is actually higher since the 11th).

2) It is true that the CAF is a closed-end ETF trading below its NAV. It has been my observation, however, that such NAV mispricings often persist for extended periods of time and shouldn't necessarily preempt a short-term trade backed by a well thought out rational.

China Rebalancing ETF Pair Trade

Three Month Share Averages -

FXI - 3.7 million
CAF - 0.4 million
WMH - 5.3 million

China Rebalancing ETF Pair Trade

Three Month Share Averages -

FXI - 3.7 million
CAF - 0.4 million
WMH - 5.3 million