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 [转帖]Leverage and Inversion: A New Look for ETFs |
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科尔沁草原殿下
头衔: 海归少校
声望: 博导
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加入时间: 2007/03/04
文章: 2263
来自: 哲里木盟科尔沁左翼中旗木里图苏木爱搞不搞嘎差
海归分: 25873
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作者：科尔沁草原殿下 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
Posted on Jun 1st, 2007 with stocks: PSQ, QID, SDS, SH, SPY
Brad Zigler submits: Some people are born complainers. Take John Bogle, founder of the giant Vanguard mutual fund family, for instance. In a recent op-ed piece written for the Wall Street Journal, Bogle grumbled that proliferation in the exchange-traded funds [ETFs] marketplace could lead investors and their advisors astray.
"It was only a matter of time until trading overwhelmed diversification as the driving force in the ETF world," Bogle writes. "Of the 690 ETFs in existence today (including 343 in registration at the SEC), only 12 represent broad market segments, such as the Standard & Poor's 500."
Bogle, to be sure, saves most of his vitriol for fundamentally weighted ETFs put out by PowerShares Capital Management LLC and WisdomTree Investments, Inc. Bogle only obliquely swipes at recently launched funds offering leveraged and inverse exposures to the venerable S&P and other broad market benchmarks.
Leveraged and inverse index portfolios, of course, are nothing new--to Bogle or to other financial pros. They've been around for nearly a decade in a mutual fund format. ProFunds Group first brought these to market in 1998, but had to wait until 2006 to get ETF analogs, known as ProShares, into advisors' and investors' hands.
ProShares now seems to be on an ETF roll. "Since we launched the original eight ProShares in June 2006," said CEO Michael Sapir in February, "we've amassed $3.4 billion in ETF assets. Inflows average $100 million per week.".
That's some serious coin. If that clip is sustainable, ProShares could easily double its assets within a year's time.
So, who's flipping coins in Sapir's direction? And why?
"Our best information suggests that 40 percent of our ETF assets come from registered reps," says Sapir. "While the flow from wirehouses is substantial, we also see assets from a broad spectrum of broker/dealer reps, including those of regional firms."
That said, the majority of asset inflows seem to come from RIAs, either hedging client assets or pursuing sophisticated alpha-hunting strategies.
Leveraged and inverse funds, say some market observers, aren't for the buy-and-hold crowd. "I think you could live a very happy life without them," declares Morningstar's Dan Culloton. "You need to be a pretty sophisticated trader to be able to use them."
Even for defensive purposes, you have to possess a certain level of mathematical sophistication to get a hedge sized properly.
That's because the bogey for the funds is beta, not compound returns. Beta represents the correlation between variation in a fund's daily price and that of its benchmark. Thus, the avowed goal of Short S&P 500 Fund (SH) is to yield the inverse daily price performance of the S&P 500 index [SPX]. The UltraShort S&P 500 Fund (SDS) is supposed to deliver twice the inverse beta of the benchmark.
Table 1 illustrates the differences in returns earned by SPX-based levered and inverse ETFs for a seven-month bull run following their 2006 launch. Notice that SH, with a beta of -1.15, more than fulfilled its mandate, yet produced a market return equivalent to -69 percent of SPX. Similarly, SDS's market return was -143 percent of SPX's despite a beta of -2.14. A short position in the SPDR Trust (SPY), on the other hand, would have fairly well matched the SPX return for the period.
To illustrate comparative hedge effects, imagine shorting SPY at 140 just ahead of a five-day run of one percent declines. Ignoring tracking error and spreads, SPY would be at 133.14 (140 x 0.99 ^5) at the end of the fifth day, a 4.9 percent gain. Over the same period, a long position in SH initiated at say, 88 would have gained 5.1 percent (88 x 1.01^5-1), a 0.2 percent better return than the short sale. The reason? In a market decline, SH increases in value, augmenting the position's size and compounding the gain.
If the market instead gained one percent per day for five days, SPY would end up at 147.14, for a loss of 5.1 percent, but SH would give away only 4.9 percent of its value--the compounding effect in reverse.
Of course, the differential in expenses, tracking error and spreads between the ETFs impact the compounding effect over time but clearly, the use of inverse funds can leave a portfolio with some residual risk. Chart 1 illustrates the early cumulative performance of SPX-based ETFs.
For this reason in particular, Barry Ritholtz, chief investment officer for New York's Ritholtz Capital Partners, says inverse ETFs are "good products for hedging in accounts that either cannot short or use options; they're also superior to mutual funds, but inferior to shorting traditional ETFs.”
Ritholz's big-cap exposures includes the Nasdaq-100 [NDX] universe, so hedging the performance of the junior market is vital. "The names with the highest beta tend to be Nasdaq-100 issues, so we mostly use the Short QQQ ProShares (PSQ) and the UltraShort QQQ ProShares (QID) to hedge, depending upon our clients' risk tolerance."
Ritholz treds the hedge fence gingerly. "Although we have discretion in these accounts, we heed our clients' wishes. A client, for example, may say 'I don't want to be short stocks, but you can hedge. QID is perfect for them. Another client may tell us 'We want to be at least 90 percent long.' A ten percent position in PSQ can get us there."
No one should be surprised to learn that the compounding effect is exhibited in NDX-based ETFs as well, as illustrated in Table 2. In fact, betas are tighter in ETFs based on NDX as opposed to those tracking SPX. The closer a fund's actual beta is to its target--plus or minus 1 or 2--the less the likely rounding error in a hedge.
Largely, beta tightness springs from greater liquidity. There's nothing "junior" about the NDX-based market compared to that of SPX-tracking funds: the median daily volume of QQQQ is better than 1.5 times that of SPY.
There's a direct relationship between liquidity and beta in both markets, too. Liquidity can be measured by comparing the aggregate dollar impact of price changes over time, reduced to an index. The liquidity index represents the number of shares that must be traded--disregarding changes in the underlying index--to "move" the ETF's current market price one percent. The higher the number, the more liquid the market.
By and large, the actively traded funds are the granddaddies, QQQQ and SPY, and to a much smaller extent, double-inverse QID and SDS. This is indicative of the use pattern for these portfolios as double-inverse portfolios are used both defensively and offensively by advisors.
Many money managers use the double-inverse portfolios to get "the best of both worlds"--long market exposure coupled with a levered short--bringing portfolio risk down towards that of a long call. With the inverse portfolios, managers can extend a fund's ownership horizon, turning short-term into long-term holds.
That's about all these new portfolios are good for according to David Krein, president of New York's DTB Capital. "I see them as more defensive, rather than offensive weapons, says Krein. "I don't really see a compelling need for leveraged ETFs [in general], but the inverse funds are different. The inverse funds can be used to hedge exposure."
Other advisors, however, think the positive-beta levered portfolios can be a building block for alpha strategies. Some advisors combine levered ETFs with actively managed portfolios, following a 'core-satellite' approach for their clients. Using half (or a quarter, if margin is used) of an investor's risk capital to buy a double-beta broadbased index fund leaves the other half (or three-quarters) to be deployed in search of excess returns.
Cambria Investment Management portfolio manager Mebane Faber sees the utility of levered portfolios to balance a portfolio's risk exposure, seeking parity among all the asset classes employed in a portfolio.
"You allocate half your capital to your desired equity exposure, levered 2-to1," says Faber, " and place the excess capital in bonds, or if attempting a portable alpha exposure, in listed hedge funds and alternatives."
Risks like that represented by the beta-liquidity link may not be fully appreciated by investors or their advisors according to senior editor of The Index Investor, Tom Coyne. "What these new leveraged ETFs do is make it much easier for more individual investors to implement a leveraged approach, without making all the risks involved quite as clear."
Still, it's necessary to keep in mind that the lifespan of the levered and inverse ETFs is measured in months. QQQQ and SPY have been around for years. Liquidity needs to be time to built.
Mark Manning, an advisor at Ohio-based Butler Wick & Co., offers his own caveat about double-levered funds.
"My partner and I use the ETF’s quite extensively in our managed accounts. I think only experienced traders should use double-inverse portfolios.. One thing for sure is that I would always use a protective sell stop on these funds in the event of a major market run."
Note: This article originally appeared in the April 2007 issue of Registered Rep. Magazine.
作者：科尔沁草原殿下 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
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 [转帖]Leverage and Inversion: A New Look for ETFs -- 科尔沁草原殿下 - (9581 Byte) 2007-6-05 周二, 23:14 (810 reads)
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