Anybody holding DUST?

hank

Came across this one today. It’s being suggested by some pundits as a hedge against your gold mining stocks falling further.

The description from Lipper:

“The Fund seeks daily investment results, before fees and expenses, of 200% of the inverse (or opposite) of the price performance of the NYSE Arca Gold Miners Index. The Fund creates short positions by investing at least 80% of its net assets in: futures contracts; options on securities, indices and futures.”

DUST is off -71% over the past 3 years. Think I’d rather fry along with some mining stocks than try to catch this one. Gold’s been in a see-saw all year, bouncing between $1700 and around $1850. It appears to be on its way down again after topping-out only a few weeks ago.Just below $1800 at present. But this kind of erratic behavior is pretty typical. Limit your exposure. Don’t chase on the way up or down.

yogibearbull

ETF industry has +2x NUGT, -2x DUST and the reference is supposedly GDX. So, the sponsor does fine whether investors win or lose, or lose and lose (see 3 yrs below).

In the Stockcharts below, timeframe may default to 1 yr eventually, so reset times appropriately.

These futures-based work OK for short-term trading. Look at LINK 3Mo.

Now look at 3 yrs, and BOTH did worse than GDX. LINK 3 Yrs.

That is why the SEC and FINRA have investor alerts on these types of funds.

hank

Thanks @yogibearbull - Would love to hear more about those “alerts”. I know that on rare occasion when I’ve purchased a fund that shorts equities at Fido, an alert pops up. Essentially it says that this is a very risky investment that’s appropriate for only very experienced investors. I than click an acknowledgement and proceed. But 2X shorting of something as narrow-based and volatile as gold miners takes risk to a much higher level than, say, a typical long / short equity type fund.

If those “alerts” are simply buried in legalese inside the Prospectus and not prominently posted on Lipper, M* and other third party sites, I’d question their effectiveness.

yogibearbull

The SEC has issued several warnings on leveraged ETFs under its "Investor Alerts & Bulletins" since 2009 with most recent being in 2021. These explain that the leveraged ETFs work as indicate only over "days" and should be used only for very short-term trading. Actually, the 2009 warning caused a strong reaction from the ETF industry over the SEC defining short-term as "days" rather than other vague meanings of short-term. In 2020, the SEC issued rules limiting NEW leveraged ETFs to +/- 2x, but allowed existing ETFs with higher leverage to continue; strangely, it excluded leveraged ETNs (really sponsors' IOUs or debt instruments) from these restrictions.
2021 Alert https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-2
2020 SEC Rule https://www.sec.gov/news/press-release/2020-269
2009 Alert https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-alerts/sec-finra

sma3

I am pretty sure "Mommie" Vanguard refuses to let you trade any short or leveraged ETF

hank

Not all is bleak today. Gold’s picked up $23.00 and the miners are up better than a half percent.

sma3 said:

I am pretty sure "Mommie" Vanguard refuses to let you trade any short or leveraged ETF

It’s crazy in some ways. You can buy DFKG (down 12% today) at Fido w/o any warning. But you get one when you try to buy DFND - which isn’t all that risky. But it holds a 25% constant short position. Than there’s TMSRX, which can of course short equities, but prompts no warning. I haven’t come across anything you can’t trade at Fido. Just some hoops to jump through.

Derf

@hank ; I was wondering if you were working on your next bet after viewing your last post ? '' Just some hoops to jump through."

Derf

hank

@Derf - The hoops is a reference to Fido requiring you to acknowledge (by clicking an accept icon) that you have read and understand the warning and that you feel experienced enough to proceed with the purchase.

Next bet? Nothing looks attractive, No major changes except continuing a near month-long 4-5% bet on TAIL (which requires you to acknowledge a warning at Fido). It’s not enough to overcome gains if the market continues upward, but serves as a “brake” in sharply declining markets, limiting losses. Rose .81% yesterday. The effect of holding a small amount is similar to driving forward while riding the brake a bit.

PS - The other kind of hoops. Been on the losing end of a few lately. Taking a breather.