Tag Archives: seekingalpha

Hedge Is The Word For 2013-ETFs For the Risk-On Risk-Off Universe

February 7, 2013 MarketsMuse Staff Reporter Leave a comment

Courtesy of Brad Zigler. This article first appeared in the February 2013 issue of REP/WealthManagement.com.

In 2013, the market for alternative investment exchange-traded products seems to revolve around one word. That word is “hedge.” Judging by their proportion of regulatory filings and launches last quarter, product sponsors are keen on risk-controlled equity and bond plays.

No surprise there, really. After all, we’re just emerging from one of the most volatile periods in market history. Investors – and their advisors – are still a little dizzy after being buffeted by the frets of an impending “fiscal cliff,” a meltdown of the eurozone, further ballooning of the federal deficit and fears of potential asset bubbles.

Overall, the prospects for 2013 are mixed at best. Stocks, while not the raging bargains they were during the recent recession, may still be attractively priced, but their dynamics have changed. The recent equity rebound has largely been market driven. Value plays, starting in early 2009 as corporate profits widened, are now becoming sparse. Currently, the market is reacting more to political influences such as Fed policy and the deficit debate, causing some pundits to forecast an even riskier environment ahead. With such prospects, they say, a little hedging and bond buying seems prudent. Exchange-traded product manufacturers are happy to oblige.

Hedged Equity

Funds and notes geared to dampen market volatility have proliferated in the wake of the 2008-2009 crash. Some have enjoyed extraordinary success attracting assets. Witness, for example, the Invesco PowerShares S&P 500 Low Volatility Portfolio (SPLV), which has pulled in more than $3 billion since its May 2011 debut. SPLV is essentially a passive hedge. The fund mirrors a 100-stock portfolio, carved from the S&P 500 Index, representing issues with the lowest 12-month trailing volatility.

Invesco now offers investors a more sophisticated approach to managing volatility with its December 2012 launch of the PowerShares S&P 500 Downside Hedged Portfolio (PHDG). Like SPLV, the new PowerShares fund invests in U.S. stocks but hedges downside risk through futures contracts linked to that well-known “fear gauge,” the CBOE Volatility Index (VIX). Continue reading →

ETF News

Short TVIX: The Ultimate VIX Contango Trade

June 20, 2012 MarketsMuse Staff Reporter Leave a comment

June 19, 2012

Contango is Back

The volatility futures curve is back in strong contango, and with it an opportunity to profit from the short trade on volatility linked ETFs/ETNs. For a primer on this trade, see previous articles here and here, but in short it’s an attempt to profit from the bias of investors to believe that market volatility in the future will be greater than it is in the present – essentially a fear of the “unknown unknowns”.

A Better Way to Play

In the past, I have advocated the use of short (VXX) or long (XIV) as ways to profit from steep contango, but there is, in my opinion, a more compelling way to profit from contango, short (TVIX).

is a 2x leveraged version of the VXX which should, in theory, return 2x the daily gains or losses of VXX or similarly structured funds.

However, as many have observed the TVIX had a pretty wild ride this spring. For those not familiar with the fund, in February the fund’s sponsor Credit Suisse temporarily halted creation of new units of the fund in response to skyrocketing demand and ballooning risk exposure for CS. Halting the issuance of new shares broke the mechanism that tends to keep funds trading in line with underlying value, and in a tulip mania moment, the market bid the price up to an 89% premium to fair value in just a few weeks. About a month later, when the sponsor resumed issuing shares on a limited basis, shares traded down sharply and more in line with fair value. Continue reading →

ETF News, People Profiles

How To Hedge Market Top With ETFs.

March 15, 2012 MarketsMuse Staff Reporter Leave a comment

Following is courtesy of ETF Database market analyst Stoyan Bojinov:

Are we near the top or did the bull train just leave the station? Fundamental news has been bolstering equity markets higher since the start of 2012, although many investors are fearful that if they jump in now, the next market correction may very well wipe out all of their gains and then some. Luckily, thanks to the evolution of the ETF industry, investors who wish to dip their toes in the water without going “all in” so to speak have a number of valuable instruments at their disposal.

Newcomer QuantShares offers mainstream investors a creative approach to hedging for a potential correction while also easing the burden of market timing. The Boston-based issuer offers a suite of market neutral ETFs that are worth a closer look for anyone who wishes to lower their portfolio’s overall volatility through the purchase of a single ticker.

Each of the products is market and sector neutral; QuantShares ETFs hold equal weighted, dollar neutral long/short positions, which means they can deliver positive returns in both bull and bear markets. Continue reading →