We are going to add to our international holdings. We have a nice 67% profit on our shorts of Direxion Emerging Markets 3x Bear Fund (NYSEARCA:EDZ) since we took the short position in November 2011. It has now declined to an insignificant portion of our portfolio and has bounced up a bit. So, we will add another short position equivalent to 15% of a holding our portfolio. If you don't have a position in EDZ, since it is a triple leverage stock, you want to take only 1/3 of a position.
Leveraged funds decay in value over a long period of time due to volatility and the mathematical compounding of these results. For instance, if the underlying emerging markets rise 10%, EDZ falls 30%. Then, if the markets fall 11%, the markets will have declined from 1.1 times their original value back to where they started. Meanwhile, EDZ would rise 33% from 70% of their value to 93% of their original value. This continues over time and makes leveraged funds a most unfavorable holding over long periods. For the same reasons, short positions are favorable over the long-term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.