themicrokid

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  • Leveraged ETFs: Buy and Holders Beware, These Are for Active Traders
    I am not so sure, financials are dead. They seem to have a way to keep making money, probably because everybody has to use them. I am less certain, if a bottom is in. There seems to be a water torture way to try to find a new set of problems.

    One of the most interesting investment methodologies I know of is the statistical work Robert Drach has done. He has data back to 1977 validating his timing model to beat the averages. He is heavy in financial's. At this web site, with data back to 1995, you can see his model portfolio changes every day. www.pbs.org/nbr/site/r.../

    He has much better results on his subscription timing model.

    And every time he goes long, everybody says, it's different this time.

    ********** Switching Gears********

    Leveraged funds have a couple of other characteristics. 1) They are
    not an investment in equities, but in futures and other derivatives. Therefore, they do not always meet their 2x objective, even while in a trend and occasionally beat it. 2) On some of them the spreads and the intraday hysteria may make them significantly off their tracking index.

    I did a quick study on QQQQ, QLD, and QID to see some real cases.

    I picked 5/19/2008 as the closing date and assumed purchases on three dates of an equal dollar amount. The first two dates were picked without paying attention to the market. The third was picked to assure the QQQQ's were high, to see, the effect of the QID's.

    One issue with this study is leveraged ETF's are a new phenomena. I could have performed this with Rydex mutual funds and went back much farther.

    Purchase 8/1/2006 a few weeks after the launch of QLD.
    Gain 5/19/2008 QQQQ 37%, QLD 59%, QID -46%

    If you were long QLD, you are much happier than long QQQQ. If you were long QID, you were out to lunch.

    Purchase 7/31/2007 a year later.
    Gain 5/19/2008 QQQQ 5%, QLD 1%, QID -16%

    Spinning wheels, unless you were in the bearish QID.

    Purchase 10/26/2007 chosen to have a fairly high QQQQ
    Gain 5/19/2008 QQQQ -8%, QLD -20%, QID 9%

    Only QID would have you happy and you would be much happier, if you had bailed from it on March 10, 2008. Gain 5/19/2008 QQQQ -23%, QLD -44%, QID 65%

    This suggests, if you can play horseshoes with tops and bottoms, you can make yourself very happy with leveraged ETF's.

    All these percentages are adjusted for dividend payouts. Yes, even leveraged ETF's may pay out dividends at times.

    I write about topics such as this and other things at themicrokid.blogspot.c.../
    May 20 20:38 pm |Rating: 0 0 |Link to Comment |View article

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