Market wisdom:markets go up and prices go down. When it comes to selecting an ETF or ETN that might make you a sage when managing money for risk-sensitive,sophisticated investors, UBS ETRACS launched a twin-set product back in the dull days of December, one of which might whet your hedge-fund like appetite for risk management in the face of headwinds.
Mark Fisher, co-creator of ETRACS ETNs "OFF" and "ONN"
Developed by commodity trading King Dennis Gartman and “He-Who-Knows-All-About-Risk” Mark (“The Fish”) Fisher, (among other titles, Fisher is also the author of the trading bible titled “The Logical Trader”), the UBS ETNs are aptly labeled “ONN” (for those wanting to put on risk) and “OFF”, which is designed for those seeking to mitigate multi-asset class risk exposure.
As both of these products are starting to gain traction in terms of increasing daily volumes, its the “OFF” that is worth spotlighting right now. If you’re a chartist, you might spot an intriguing trend.
Caveat1: read the prospectus; Caveat 2: Don’t be distracted by the limited transparency displayed by screen-based bid/offer markets for these products; read the prospectus and make a call to a liquidity aggregator that can capture improved quotes.
This morning’s precipitous decline in major equity indexes comes as no surprise to anyone, even if its the first Triple-Digit Decline in the Dow in 3 months.
Synonymous with big market moves, we think about what hedge funds are doing right now, and whether or not they’re exploiting ETFs as part of their hedging strategies. How prescient on the part of Pensions & Investments to issue a report yesterday “Hedge Funds mum about ETF use” in their effort to peel back the onion layers on hedge fund managers’ use of ETF products.
P&I reporter Christine Williamson delivers some good insight when writing:
Hedge fund managers are the 3rd biggest institutional users of exchange-traded funds and exchange-traded products; but they’re reluctant to talk about it.
Why? “Investors in hedge funds are paying big fees for active management equity selection. If a long/short manager goes long individual equities and only shorts ETFs and (indexes), it is a terrible deal for investors (because) fees should be a lot lower,” Jim Vos, CEO, head of research and principal at hedge fund consultant Aksia LLC, New York, said in an e-mail.
That said, In aggregate, about 17% of hedge fund short positions and 4% of long positions were made through ETFs, estimated Goldman Sachs researchers from the company’s global economics, commodities and strategy research unit. The data is from the company’s Feb. 21 edition of “Hedge Fund Trend Monitor” report.
Aside from warming up to the two UBS ETRACS, hedge-fund tailored ETNs launched late last year by Mark Fisher and Dennis Gartman (OFF) and (ONN), what are the most common uses of ETFs by hedge fund managers? Read the full story: