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Apparently, there are no 1X (inverse) funds that short energy …

There are some 2X funds that do. But haven’t seen any 1X.

Comments

  • @hank : Just half your investment in 2X , same result.
  • It is not unfortunately the same result because of the vagaries of derivatives.
  • Thanks both. I did consider some type of 50/50 bucket (using bonds) but things are complicated enough - so why add more complexity?
  • edited June 14
    As soon as you add 2X or 3X to an ETF, things start to get weird. The returns are 2X or 3X on a daily basis, but long-term they are not. There are options decay and weird compounding issues.
  • Thanks for your replies. I guess I knew some of that info, but don't use 2X etc. , so lost it somewhere !!
  • Once upon a time there was a fund company that offered 1.25x funds, figuring the relatively low multiplier might hit a happy medium between increased returns on good days and the adverse cumulative effects ("beta decay") of leverage in volatile markets.

    It was called Potomac Funds. Here's their paper on the 1.25 approach.
    https://web.archive.org/web/20050518025112/http://www.potomacfunds.com/data/125_approach.pdf

    The company didn't succeed and in 2006 decided to change direction (Direxion). Instead of offering the least leveraged funds in the industry, it would offer the most leveraged at the time (2.5x).
    https://www.fa-mag.com/news/article-192.html?issue=70

    It seems that wasn't enough. So in 2008 it launched a series of 3x ETFs (including inverse 3X).
    https://www.etf.com/sections/features/5063-direxion-exec-offers-three-times-the-leverage.html?nopaging=1

    Direxion even tried selling a 1X bear energy ETF (ERYY), but that lasted only between early 2016 and late 2017. And its clean energy ETFs were never launched.

    In addition to changing from conservative (1.25) to ultra, hyper leverage (3x), Direxion tried yet another path. (No, not ETNs, that would be iPath.) It offers leveraged funds that rebalance monthly rather than daily. This is another approach to providing leverage while reducing the problem of daily beta decay. Monthly rebalancing still doesn't work for long term investors, but might work in the intermediate term.

    From the Journal of Accountancy, Daily vs. monthly rebalanced leveraged funds
    Several academic studies have also pointed out how these [daily rebalanced] leveraged fund’s multiples decay over time [citations omitted]. The message apparently has been received as the implied holding period for most of these funds is now less than a week. The overriding conclusion is that even under ideal conditions, holding daily rebalanced leveraged funds beyond a few months will almost certainly lead to disappointment in terms of maintaining the leverage ratio.

    In answer to this drawback, Direxion changed their daily leveraged mutual funds to monthly leveraged funds in September of 2009. [Their OEFs are rebalanced monthly, their ETFs daily.]
    ...
    When the market is relatively volatile, both daily and monthly leveraged funds will likely underperform just holding the underlying index. Thus, even monthly leveraged funds should not be considered for the typical buy and hold investor. For intermediate-term or active investors, monthly leveraged funds do have added value and are a nice alternative to daily leveraged funds.
    https://www.aabri.com/manuscripts/10676.pdf
    https://www.direxion.com/mutual-funds

  • edited June 15
    No 1x
    Been using 3x
    Gush ( flow warket)
    Drip ( against market)
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