Junto Posted September 12, 2011 Share Posted September 12, 2011 A group of my buddies from my MBA cohort started an investment club a few years back. Today we opened a position in ProShares UltraShort 7-10 Year Trea(ETF). It is an interesting position from my view point as it allows an investor to short the treasury marketplace. Brief Thesis: 10 - year Treasuries at lows not seen since 1940's. Market has built in the Fed will be extending the duration of its balance sheet. General bet that the European crisis will not be Lehman 2.0 and we are not entering a period of stagflation. We are targeting an exit $38-$40 in 12 months. Link to comment Share on other sites More sharing options...
A_Hamilton Posted September 12, 2011 Share Posted September 12, 2011 Junto, What if we are entering a period of deflation? Not stagflation. I wouldn't put this trade on for anything, especially given how flawed these products are if there is volatility (In fact I've been shorting a number of levered ETF pairs (TNA/TZA, SDS/SSO, UPRO/SPXU). What do you base $38-$40 on? You realize that all levered ETF's tend towards zero over a long time horizon, correct? I wish the SEC would outlaw these things. Junto, go long some life insurers at 30-40% of book if you want to play a potential increase in yields...these levered ETF products are just a recipe for losing money. Link to comment Share on other sites More sharing options...
rranjan Posted September 12, 2011 Share Posted September 12, 2011 You can be right about final outcome but returns might not be what you expect from these products. These ETF's try to maintain a constant leverage so it works very well only if you have very low volatility. To play short term swing you might be able to use these products but over the long term , I don't think you can use these ETF's for making any bet. Link to comment Share on other sites More sharing options...
twacowfca Posted September 12, 2011 Share Posted September 12, 2011 Junto, What if we are entering a period of deflation? Not stagflation. I wouldn't put this trade on for anything, especially given how flawed these products are if there is volatility (In fact I've been shorting a number of levered ETF pairs (TNA/TZA, SDS/SSO, UPRO/SPXU). What do you base $38-$40 on? You realize that all levered ETF's tend towards zero over a long time horizon, correct? I wish the SEC would outlaw these things. Junto, go long some life insurers at 30-40% of book if you want to play a potential increase in yields...these levered ETF products are just a recipe for losing money. Good idea to go long certain life insurers to play a reversal in the multidecade bubble in Treasuries. However, many if not most life insurers are no longer pure plays on life insurance because of their creating and selling other products. What are a few good names for pure play life insurers? Link to comment Share on other sites More sharing options...
A_Hamilton Posted September 12, 2011 Share Posted September 12, 2011 Junto, What if we are entering a period of deflation? Not stagflation. I wouldn't put this trade on for anything, especially given how flawed these products are if there is volatility (In fact I've been shorting a number of levered ETF pairs (TNA/TZA, SDS/SSO, UPRO/SPXU). What do you base $38-$40 on? You realize that all levered ETF's tend towards zero over a long time horizon, correct? I wish the SEC would outlaw these things. Junto, go long some life insurers at 30-40% of book if you want to play a potential increase in yields...these levered ETF products are just a recipe for losing money. Good idea to go long certain life insurers to play a reversal in the multidecade bubble in Treasuries. However, many if not most life insurers are no longer pure plays on life insurance because of their creating and selling other products. What are a few good names for pure play life insurers? Yes, that's a fair point. Hard to find a monoline life company at this point. Symetra is about as close as you get with just a life/annuities/medical stop loss business. Link to comment Share on other sites More sharing options...
prunes Posted September 12, 2011 Share Posted September 12, 2011 I've looked at some of these levered ETFs and I really think that the volatility risk is ignored. Have you looked into this? Link to comment Share on other sites More sharing options...
BargainValueHunter Posted September 12, 2011 Share Posted September 12, 2011 I rarely use the phrase "sucker's bet" but PST, TBT, ERX, FAS, FAZ, TZA and FXP are probably the most egregious sucker's bets in the marketplace if you plan on holding for more than 24 hours. A group of my buddies from my MBA cohort started an investment club a few years back. Today we opened a position in ProShares UltraShort 7-10 Year Trea(ETF). It is an interesting position from my view point as it allows an investor to short the treasury marketplace. Brief Thesis: 10 - year Treasuries at lows not seen since 1940's. Market has built in the Fed will be extending the duration of its balance sheet. General bet that the European crisis will not be Lehman 2.0 and we are not entering a period of stagflation. We are targeting an exit $38-$40 in 12 months. Link to comment Share on other sites More sharing options...
Guest Hester Posted September 13, 2011 Share Posted September 13, 2011 There is no word appropriate for levered ETFs other than suckers bet. They all fail long term. They were made for day traders and swing traders, and should never be owned for more than a few weeks. If you want to make a bet for higher interest rates in a year, buy puts/short a levered bull ETF. There are also some banks that are very liability sensitive and their earnings get crushed when rates move up. You could bet against them too. BOFI comes to mind as an extreme example. One that many value guys like and one that will get crushed once rates rise. And the opposite is true. Very asset sensitive banks will see higher earnings. Many are not priced for it. Of course there are other factors to consider so its not a direct bet. Link to comment Share on other sites More sharing options...
redskin Posted September 13, 2011 Share Posted September 13, 2011 Junto, What if we are entering a period of deflation? Not stagflation. I wouldn't put this trade on for anything, especially given how flawed these products are if there is volatility (In fact I've been shorting a number of levered ETF pairs (TNA/TZA, SDS/SSO, UPRO/SPXU). What do you base $38-$40 on? You realize that all levered ETF's tend towards zero over a long time horizon, correct? I wish the SEC would outlaw these things. Junto, go long some life insurers at 30-40% of book if you want to play a potential increase in yields...these levered ETF products are just a recipe for losing money. A Hamilton, What broker are you finding the borrows on these ultra short etfs? I would love to sell all of them, but they are hard to borrow. Link to comment Share on other sites More sharing options...
Junto Posted September 13, 2011 Author Share Posted September 13, 2011 Not my idea for the group, but one of my colleagues that has recommended some very wise moves for the group over the past three years. I posted it as it is a very interesting investment vehicle given the current Treasury rates. I agree on the volatility negative on the levered ETF field, but I am leaning on his knowledge on this one. My thesis and our other investment for the quarter was SVU. Link to comment Share on other sites More sharing options...
finetrader Posted September 23, 2011 Share Posted September 23, 2011 One day when long term rates will bottomed (when Faifax will make big gain selling their long term US bonds) MFC will be a good buy. Good idea to go long certain life insurers to play a reversal in the multidecade bubble in Treasuries. However, many if not most life insurers are no longer pure plays on life insurance because of their creating and selling other products. What are a few good names for pure play life insurers? While this environment is taking a toll on all life insurers, Manulife is one of the most sensitive to interest rates in North America, Mr. Devine said. http://www.theglobeandmail.com/globe-investor/manulife-hit-by-falling-rates-plunging-markets/article2178448/ Link to comment Share on other sites More sharing options...
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