The ArabianMoney short ETF portfolio established in last month’s edition of our investment newsletter shows an average gain of 4.8 per cent over the past month while 90 per cent of hedge fund managers reported losses in the worst May for the Dow Jones Index in 70 years.
A full review of the performance of this ’short ETF, fund of funds’ is contained in the latest edition of the newsletter, available for a $99 subscription from arabianmoney.net.
Shorting a falling market
Short ETFs are designed to capture the reverse performance of stock markets. They fell substantially in the stock market rally by contrast. Now that this rally appears to be over there should be an equally substantial upside, or even half of it would deliver big gains.
By spreading the risk of investing in an individual fund by buying multiple ETFs, investors should mitigate third party risk. The newsletter advises on a strategic approach and when to sell, although it does not offer recommendations tailored to individual investor circumstances.
But for stock market investors falling markets can be a time of great opportunity as well as a threat. More big fortunes have been made by shorting stocks than by staying long. That is because the price changes are generally much faster going down than up.
It is a question of positioning a portfolio to take advantage of this movement. Short ETFs have had a controversial debut, mainly perhaps because markets moved in the opposite direction but should be among the few asset classes to profit as markets go down.
After the big rally since March 2008 financial markets have turned volatile again. Last week closed with the Dow Jones falling back below 10,000. That tends to suggest that the downtrend established in May will continue, albeit with considerable volatility.
It used to be said ’sell in May and go away’ but that was before shorting. If you shorted in May you should not go away, but patiently wait until the bottom of this downtrend.For anybody who wants the list of 10 short ETFs that comprise the ‘fund of funds’ established by ArabianMoney our newsletter might actually make an excellent investment this month.
Disclosure: No positions