Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
I would rather use ETFs unleveraged such as SH as you can set stop losses so don't loose your shirt.
while it doesn't make sense to use them in Retirement account as there are no capital gains, in a taxable account they can protect you from generating sig taxes.
Of course, Mommie Vanguard will not let you use inverse ETFs
I’ve searched and searched the possibilities in recent months. Most I track haven’t done that well - yet, at least. For example SWAN, DFND, DRSK, NUSI, NLSAX
Of course, you can go “straight up” with something like BEARX or DOG. But it’s a gamble I wouldn’t be comfortable with. Very risky. The old line … “Markets can remain irrational longer than most investors can stay solvent.”
I’m using TAIL in small amount (5% give / take). It’s a small timing play as well as a bit of portfolio insurance. I’d add a little more on strengthening indexes and sell off a bit should markets decline substantially..
I’ve always thought the best defense was broad diversification across: asset classes, geo-political areas, risk levels (beta), and some cash or short duration bonds. Also, don’t overlook the “alternatives” mentioned in various threads.
As to the "cash" as a place to run to in the event of an equity melt. Well, if one is able to pull the evacuate equity soon enough, and choose not to go to U.S. bonds or notes, our current default core cash at Fidelity yields, 1.6%. Just wondering what yield is lately.
@derf Our default core cash is FDRXX (Fido Govt Cash Reserves). The nominal yield is .01%. Only a safety exit to preserve a larger lose. Normally, I would travel to gov't. bonds etf's; but not much is normal right now in many bond areas being used as a "flight to safety" area.
I'm about 55% in Alts and 25% US and Foreign equities. My alts are chugging along fine, no losses (getting Madoff'd certainly a risk). I am looking for a hedge to my equity exposure.
I’ve searched and searched the possibilities in recent months. Most I track haven’t done that well - yet, at least. For example SWAN, DFND, DRSK, NUSI, NLSAX
Of course, you can go “straight up” with something like BEARX or DOG. But it’s a gamble I wouldn’t be comfortable with. Very risky. The old line … “Markets can remain irrational longer than most investors can stay solvent.”
I’m using TAIL in small amount (5% give / take). It’s a small timing play as well as a bit of portfolio insurance. I’d add a little more on strengthening indexes and sell off a bit should markets decline substantially..
I’ve always thought the best defense was broad diversification across: asset classes, geo-political areas, risk levels (beta), and some cash or short duration bonds. Also, don’t overlook the “alternatives” mentioned in various threads.
Good luck. Let me know if you find the perfect hedge. I learned long ago that betting on both sides of a sports event (hoping you can get out of one position early) tends to be a loosing proposition. Mainly because there’s associated expenses (the casino’s “take”) on both sides, so you simply double your cost.
Holding any hedge is costly even if it works. You’re essentially betting on both sides as I understand it.
I started using DOG (100% inverse Dow) with some success back in October and noted it here. But the potential for loss seemed too great. So in November I started using TAIL (+.57% today). It only moves (inversely) about 50% of the major markets most days. However, historically it’s done much better after steep sell offs. I’m close to break even on the hold - probably out a few $$. Cost aside, it helps smooth out the daily value fluctuations. Hard to put a price on that. I like DRSK somewhat, but haven’t owned it.
If these were fuels:
DOG 100 octane
TAIL 85 octane
DRSK 60-70 octane
Keep in mind that higher octane is more potent on the downside as well as upside.
Haven’t looked at BEARX closely. But the 3% ER is a turn-off. Today it gained 1.25% which puts it about midway between the Dow and NASDAQ (on an inverse basis) - 100 octane.
Leaning towards using SPD as a hedge because it protects against steeper drops and more importantly removes the human emotion out of the "When should I sell my hedge and buy back into the market"
Leaning towards using SPD as a hedge because it protects against steeper drops and more importantly removes the human emotion out of the "When should I sell my hedge and buy back into the market"
Personally I consider ~10% corrections as garden variety and am not interested in a hedge against those. It's bigger ones that I would like to hedge against and SPD is designed for bigger drops.
SPD is also designed to automatically monetize the puts and purchase equity automatically after drops so this takes me out of the decision making which is what I want. SPD is relatively young and so may fall flat in practice but theoretically it is doing what I am looking for. I.e. An ongoing put(2%) within the context of an equity(98%) fund and all rules based and automated.
Dilemma: a situation in which a difficult choice has to be made between two or more alternatives
I think you nailed the problem with inverse funds. That is knowing when to sell out and add to equities. You have thought this through and arrived at a choice you think appropriate for your own situation.
Hi @stayCalm. I've personally never heard of SPD, but there was a lot of talk in other threads about JHQAX with it's "puts" hedging format. I own it and an unscientific observation (just me with a calculator on equity up days and down days) is it typically capture's ~60% of the S&P gains and about 40% of the losses. Much tamer than SPD when compared on a chart. JHQAX is closed but JHDAX and JHTAX are similarly structured.
Just a thought if the purpose is to hedge loss in a correction.
SPD is one of the new Simplify ETFs with complicated strategies. The web page has little information but the theory should work and is very quantitatively documented. I have not tried calling them to get a little better description of potential ups an downs (Barrons ( Sept 6 2021) said SPD's "protection would be minimal until there is a selloff of 30 to 40% " although the author had no data to back her up. It depends on the structure of the puts which also change as they get closer to exploration.
Unfortunately it is hard to find specific goals in any of the material from these funds. TAIL has been running for several years, but there is little description of what to expect
The "Buffered ETFs " seem to be more specific, as they have a specific month in their name and focus on the next 12 months.
I have a large(for me) position in JHQEX and am overall happy with it. Logan Kane in Seeking Alpha and https://www.optimizedportfolio.com/ have good write-ups on SPD. I did dabble in one of the buffered(15%) ETF's but sold out of it because I'm not really convinced that they work.
Here’s what @stayCalm posted January 20: “I am considering a position in BEARX. Would love to hear other pro/con views on the same”
I never would have mentioned the two inverse funds (DOG & TAIL) had it not been for the reference to BEARX. That’s an inverse fund, similar to the two I referenced. These types of funds are absolutely not advised for most investors. You’re buying something that goes down when the markets go up.
Good thread. Lots of less risky suggestions from others. Just didn’t want to be misunderstood. Thanks @MikeM and the others that chimed in with suggestions.
SPD is 98% equity and 2% deep OTM puts. It is designed to protect against deep drawdowns which the current one is nowhere close to. From latest peak, SPY is down around 9% which is a garden variety type correction that based on the last several decades of data on average occurs around every 18 mos.
SPD may indeed fail in practice to do what it is designed for but thus far it has not failed. I encourage you to read about Mark Spitznagel and Universa because SPD is designed along the same principles.
SPD is not like SH or SDS which are straight daily inverses of SPY.
SPD is 98% equity and 2% deep OTM puts. It is designed to protect against deep drawdowns which the current one is nowhere close to. From latest peak, SPY is down around 9% which is a garden variety type correction that based on the last several decades of data on average occurs around every 18 mos.
SPD may indeed fail in practice to do what it is designed for but thus far it has not failed. I encourage you to read about Mark Spitznagel and Universa because SPD is designed along the same principles.
I understand the concept but can't find how this would work in practice, say a 2008-2009 drawdown. If you know a good resource please share. Thanks.
I checked SPD prospectus, fact sheet, etc. They only mention put options overlay with some graphics but don't define downside protection parameters. So, it looks like buying pig in a poke.
Note that the puts protection ( in SPD) would be minimal until there's a selloff of at least 30 or 40%"
Note that it appears there would have been 6 such triggers since 1956. I don't think that's particularly valuable protection unless somehow the convexity makes it such that after the rare, massive decline you end up in the green, which I doubt, but even if it were so wouldn't it be possible to front run and dilute such a strategy, e.g. dump money into the ETF before the puts are triggered?
Yes you can front run it but it boils down to investor behavior and psychology during a steep crash.
Before the puts are triggered SPD would be down 30% plus inline with SPY. Not a lot of people would be buying into this fund at this time.
I would not have the skill to do it but some smart hedgie could figure out when the puts would be triggered, dump in funds and if the market goes up he wins, if the puts are triggered he wins big time.
Hussy hsgfx after this reset might be top dog looking backwards 10 years
What are your thoughts re hussy hsafx. Allocation fund with risk controls. Puts. Looks at stonk and bond valuations when setting allocation. Most target date, allocation funds don't??
Fido has the nerve to charge $49.95 TF for Hussman's funds. Meh. At that point, I'd rather just hold cash and put it to work when the market tilts over.
Comments
while it doesn't make sense to use them in Retirement account as there are no capital gains, in a taxable account they can protect you from generating sig taxes.
Of course, Mommie Vanguard will not let you use inverse ETFs
Yield...........meaning what?
Of course, you can go “straight up” with something like BEARX or DOG. But it’s a gamble I wouldn’t be comfortable with. Very risky. The old line … “Markets can remain irrational longer than most investors can stay solvent.”
I’m using TAIL in small amount (5% give / take). It’s a small timing play as well as a bit of portfolio insurance. I’d add a little more on strengthening indexes and sell off a bit should markets decline substantially..
I’ve always thought the best defense was broad diversification across: asset classes, geo-political areas, risk levels (beta), and some cash or short duration bonds. Also, don’t overlook the “alternatives” mentioned in various threads.
Hope this helps.
" catch22 said:
As to the "cash" as a place to run to in the event of an equity melt. Well, if one is able to pull the evacuate equity soon enough, and choose not to go to U.S. bonds or notes, our current default core cash at Fidelity yields, 1.6%.
Just wondering what yield is lately.
Our default core cash is FDRXX (Fido Govt Cash Reserves). The nominal yield is .01%. Only a safety exit to preserve a larger lose.
Normally, I would travel to gov't. bonds etf's; but not much is normal right now in many bond areas being used as a "flight to safety" area.
I'm about 55% in Alts and 25% US and Foreign equities. My alts are chugging along fine, no losses (getting Madoff'd certainly a risk). I am looking for a hedge to my equity exposure.
Good luck. Let me know if you find the perfect hedge. I learned long ago that betting on both sides of a sports event (hoping you can get out of one position early) tends to be a loosing proposition. Mainly because there’s associated expenses (the casino’s “take”) on both sides, so you simply double your cost.
Holding any hedge is costly even if it works. You’re essentially betting on both sides as I understand it.
I started using DOG (100% inverse Dow) with some success back in October and noted it here. But the potential for loss seemed too great. So in November I started using TAIL (+.57% today). It only moves (inversely) about 50% of the major markets most days. However, historically it’s done much better after steep sell offs. I’m close to break even on the hold - probably out a few $$. Cost aside, it helps smooth out the daily value fluctuations. Hard to put a price on that. I like DRSK somewhat, but haven’t owned it.
If these were fuels:
DOG 100 octane
TAIL 85 octane
DRSK 60-70 octane
Keep in mind that higher octane is more potent on the downside as well as upside.
Haven’t looked at BEARX closely. But the 3% ER is a turn-off. Today it gained 1.25% which puts it about midway between the Dow and NASDAQ (on an inverse basis) - 100 octane.
LOL
I don't follow u comment.
Personally I consider ~10% corrections as garden variety and am not interested in a hedge against those. It's bigger ones that I would like to hedge against and SPD is designed for bigger drops.
SPD is also designed to automatically monetize the puts and purchase equity automatically after drops so this takes me out of the decision making which is what I want. SPD is relatively young and so may fall flat in practice but theoretically it is doing what I am looking for. I.e. An ongoing put(2%) within the context of an equity(98%) fund and all rules based and automated.
I think you nailed the problem with inverse funds. That is knowing when to sell out and add to equities. You have thought this through and arrived at a choice you think appropriate for your own situation.
Just a thought if the purpose is to hedge loss in a correction.
Unfortunately it is hard to find specific goals in any of the material from these funds. TAIL has been running for several years, but there is little description of what to expect
The "Buffered ETFs " seem to be more specific, as they have a specific month in their name and focus on the next 12 months.
IT taks a lot of work to sort these things out
Here’s what @stayCalm posted January 20: “I am considering a position in BEARX. Would love to hear other pro/con views on the same”
I never would have mentioned the two inverse funds (DOG & TAIL) had it not been for the reference to BEARX. That’s an inverse fund, similar to the two I referenced. These types of funds are absolutely not advised for most investors. You’re buying something that goes down when the markets go up.
Good thread. Lots of less risky suggestions from others. Just didn’t want to be misunderstood. Thanks @MikeM and the others that chimed in with suggestions.
SPD may indeed fail in practice to do what it is designed for but thus far it has not failed. I encourage you to read about Mark Spitznagel and Universa because SPD is designed along the same principles.
SPD is not like SH or SDS which are straight daily inverses of SPY.
The article I quoted above is here
https://www.barrons.com/articles/option-etfs-51630661401?mod=md_funds_news
But weirdly, the current online version differs from the paper copy I have in that the following is not in online version
" Note that the puts protection ( in SPD) would be minimal until there's a selloff of at least 30 or 40%"
Article also discusses Buffered ETFs of which there are dozens, but it gets complicated.
- https://seekingalpha.com/article/4443699-spd-s-and-p-500-index-fund-with-extreme-downside-protection
- https://www.optimizedportfolio.com/spd/
Note that it appears there would have been 6 such triggers since 1956. I don't think that's particularly valuable protection unless somehow the convexity makes it such that after the rare, massive decline you end up in the green, which I doubt, but even if it were so wouldn't it be possible to front run and dilute such a strategy, e.g. dump money into the ETF before the puts are triggered?
Before the puts are triggered SPD would be down 30% plus inline with SPY. Not a lot of people would be buying into this fund at this time.
This fund is for extreme crash protection. Universa hit it big during the Covid crash, that is the use case for SPD.
HSGFX +8.5% YTD
Hussy hsgfx after this reset might be top dog looking backwards 10 years
What are your thoughts re hussy hsafx. Allocation fund with risk controls. Puts. Looks at stonk and bond valuations when setting allocation. Most target date, allocation funds don't??
Best
Baseball Fan