Comments on: Ugly Day

By: R in NY

R in NY — Fri, 09 Jan 2009 02:31:28 +0000

Wow. This thread re the inverse ETFs serves as a pretty clear mirror showing some of the problem that has led to this current financial meltdown. Look at the FRONT COVER of the Proshares Prospectus. (You know, its that thing the broker sends to you that you don’t read when you are “swing trading” or “day trading”.) I don’t know how much clearer they could say that the 2x (or 3x in the case of the Direxion etfs) returns are based on DAILY performance. Folks that are complaining that this is misleading might also belong to the set of folks that started smoking AFTER the warning labels were placed on cigarettes, and then want to find out how to sue the tobacco companies when they discover a “spot on their lung”.

Ok, a bit harsh. And I should save some invective for the clever twits that saw the opportunity (to exploit the greedy starry eyed “investors”) by structuring these products. (I’m waiting for one to create an inverse on the QUARTERLY results.

Madoff investors who lost money via a feeder fund that didn’t explain that ALL of the investment was heading to Madoff can complain… but the investors who crossed their fingers and winked when the returns rolled in come hell or highwater (half suspecting some shenanigans, but hoping they’d not get caught holding the bag) should have their names published in the paper to reap the scorn they richly deserve. ETF complainants can be similarly sub-classed.

R in NY
PS: The dividend does not compensate – particularly since it is by definition a short-term distribution and taxable at your marginal rate.
PPS: I use the inverse ETFs in hedging swing trades and overnight day trades. And made some good money selling call premia (cf. the decline in QID, SDS, DUG).

By: Mike in Nola

Mike in Nola — Thu, 08 Jan 2009 17:37:03 +0000

E Says: True that dividends need to be counted. I can only plead lateness of the hour when I posted. Looking back 3 months, even with the divident, it is still down $10.

I don’t agree with those who slam them. They can be useful. I made some bucks with them last year catching some moves.

By: E

Thu, 08 Jan 2009 17:06:16 +0000

Actually, I was way off, the QID distribution was $9.50 a share.

By: CPJ13

CPJ13 — Thu, 08 Jan 2009 16:34:51 +0000

Those QID figures from the past three months go far beyond ’slippage’. When something should be up ~14% based upon the prospectus and it’s DOWN ~28% … there’s more there than meets the eye.

I know the math says “up 10% then down 5% is not the same as up 5% from the beginning”, but those numbers are astounding. Thanks for sharing.

By: E

Thu, 08 Jan 2009 16:27:35 +0000

CPJ13 – I totally agree. If you overlay FXI vs. FXP, or DIG vs. DUG, or any other pair of related ultra ETFs, it becomes evident that they are either a fraud, or hugely mismanaged funds.

By: CPJ13

CPJ13 — Thu, 08 Jan 2009 16:00:03 +0000

@ Mike in Nola:

“For example, QQQQ is down 33% for the past six months and 35% but QID is up only 24% and 21% respectively. While it’s a nice profit, as SB has mentioned , it’s certainly not 2X.

Even worse, QQQQ is down about 7% over the past three months, leading one to believe that QID would show a profit, but QID is actually down 28%”

How much longer are they going to run these things with that type of historical performance? Think there’s a lawsuit brewing somewhere? Those are WAY off of advertised targets…

By: E

Thu, 08 Jan 2009 14:15:15 +0000

Mike in Nola, I’m with you on the overall theme that double ETFs are not quite as advertised, however in your analysis you need to factor in the dividends/distributions that they pay out. QID just paid out something like $5 a share a couple weeks ago.

By: microcap

microcap — Thu, 08 Jan 2009 10:13:11 +0000

When did Meredith Whitney’s new note on banks hit the street? I think that had more to do with it than anything. Bad days for financials= bad day for the market, period , end of story.

By: Mr Risk

Mr Risk — Thu, 08 Jan 2009 09:14:25 +0000

How about: the market was overbought?

Now, it’s going to get oversold. And so it goes.

By: Mike in Nola

Mike in Nola — Thu, 08 Jan 2009 07:05:49 +0000

Somewhat unrelated, stumbled across this ETF analyzer which allows you to get performance figures on lots of ETF’s over various lengths of time.

http://www.etftrends.com/etf-tools/etf-analyzer/

It seems to confirm show that the decay some have discussed does exist and that while Ultrashort ETF’’s may be good for short term trades, they are not necessarily good long term vehicles as suggested in this video:

http://www.thedisciplinedinvestor.com/blog/2009/01/06/video-wsj-on-2x-etfs-steer-clear/

For example, QQQQ is down 33% for the past six months and 35% but QID is up only 24% and 21% respectively. While it’s a nice profit, as SB has mentioned , it’s certainly not 2X.

Even worse, QQQQ is down about 7% over the past three months, leading one to believe that QID would show a profit, but QID is actually down 28%