ETF to short the FTSE?

JohnRo

In my foolish quest for financial freedom I am considering taking a punt with a short fund.

The volatile FTSE100 rally since June could just be the start of something much bigger but it could also be little more than a relief reaction to the somewhat diminished Greek/Euro debacle. Who knows.

I have a large percentage of my limited so called wealth tied up in equity and bond funds as described elsewhere, I also have been spread betting for the last 10 years or so on and off but haven't been consistent enough to make that pay, with a small margin I have comfortably avoided a wipe out but that's about my only achievement there.

So...

ETF Securities ETFX FTSE 100 Super Short Strategy 2x Fund

A synthetic ETF, significant counterparty risk on the swaps it uses to track its index, etc etc.

I think the UK index is looking a bit high right now and rather than waiting for the big drop that may never happen I'd like to take a punt on buying and selling this fund in the mean time.

I'm posting just to canvas some opinion, also to see if anyone else has tried this or similar, better, funds to hedge their longer term buy and hold investments.

Am I just bonkers for even considering this?

Masomnia

Maybe a bit 'Looks a bit toppy' doesn't sound a good reason to do it to me.

Why not use a spread bet? If you're careful with your exposure I doubt and ETF has much in the way of advantages over them.

grey_gym_sock

are all short ETFs synthetic?

seems bonkers to me

is it just market sentiment you think has got ahead of itself, or that you think the economy will do worse than expected? because other options include switching to more defensive shares (i.e. 1s less sensitive to how the economy is doing), or just reducing equity exposure.

is it just the UK market you're concerned about? because obviously you can switch into other markets.

if it's not so much the fundamentals, and more a short-term read of market direction, then those suggestions may be irrelevant.

JohnRo

I do use spread bets to long and short the FTSE 100 but I'm a tad cautious and using quite a low margin so don't have much scope for any worthwhile gains without taking extreme risks, which I'm mostly loathed to do.

The ETF route is just another slightly less risky avenue in my view.

rpc

Bear in mind that these aren't "simple" shorts. They rebase themselves periodically (daily maybe, that rings a bell but I can't quickly find the answer).

It means that even if you hold this for 6 months and the index drops 50%, you won't get 4x back because you are only shorted against daily movement. I'm pretty sure you can even lose money in falling markets, although I don't recall the maths and didn't pay too much attention because these seemed waaaaay beyond my means!

Glen_Clark

Despite company prospects getting worse shares have been rising because the BoE have been printing like lunatics (after first switching their own pension fund into index linked bonds) Its based on politics, its not a free market. I guess you need to do what the professionals do and hire a politician to discover, if not influence, what they will do next.

JohnRo

Good call, I can see the downside with these funds now, dammit

Maybe spread betting is the better option, I'm just getting bored with it. The ETF fund I listed aims to track 2x the inverse daily movement of the FTSE index.

Tracks the Index Performance. Shares in the Fund track the performance of the Index. The Index aims to provide twice the daily percentage change in the level of the FTSE 100® Index (the “Underlying Index”) on an inverse basis plus a set level of interest. The Underlying Index is an unleveraged index that reflects the performance of shares of a number of blue-chip companies based in the UK. In tracking the Index, the Fund is exposed on each day to an inverse multiple (by a factor of 2) of that day’s movement in the value of the Underlying Index. Further information on the Index can be found on the Index provider’s website at https://www.ftse.com/indices/.

coastline

I've learnt a lot on this forum recently thanks to posters who are trying to " fine tune " their investment set ups.
The research into investment providers...passive funds v fund managers...annual fees etc...has given posters a massive helping hand to enhance their annual returns ..
In the last few years ETF's have provided another tool to the box...at the moment I've used ISF.L the FT100 tracker...and it can work well short term .I've guaged my buy/sell decisions on the use of charts with lower indicators...as shown below.
We are now in overbought territory short term...so theres a possibility of a slowdown...this of course is not the answer to everyones investment ideas but why not have a pot and try to beat the market yourself.
I've thought about using the short fund on the link but so far never tried...but I would say we're not far away from some kind of correction.

http://www.iii.co.uk/investment/detail?code=cotn:XUKS.L&display=summary&it=letf

sabretoothtigger

Do not use 2x unless you day trade it

Normal short ETF can be quite low risk if you own stocks elsewhere. XUKS is pretty low cost, there is no borrowing costs just management fee. I used it as a hedge for a long time, too long as really it should be bought then sold a few months later as this market generally goes up as the value of sterling drops, oil price rises, etc

This is a bear market in value but not price. The way you can short cash and stocks in one way is gold. Im sure people hate that I bring this up so often but gold is an inverse to cash and company values.
In a healthy economy there is less business holding a zero return asset but right now, the world is very negative, inflation exceeds bank rates, etc

Gold is very feasible, miners are disliked, the plain physical even via a fund like PHGP is likely to outperform XUKS
I prefer miners, they pay out like savings but they have political risk, etc

JohnRo

Thanks all, tigger I'll take a look at XUKS thanks.

I'm just going to take a punt on this before Christmas to be honest, I'm prepared to put a grand in and see what happens. Let's face it, it isn't going to make me rich but more than anything I just want to test the water.

Will post an update or the results in January sometime if I remember.

I suppose the question now is when exactly to take the plunge, I have a FTSE short position waiting to snag at 5950 on my spread betting account. Certainly don't profess to have any special knowledge in any of this, i'll just close the ETF if it all starts to go pear shaped in January and at least I'll have the consolation of seeing some of my LTBH investments strengthen a little.

coastline

JohnRo wrote: »

Thanks all, tigger I'll take a look at XUKS thanks.

I'm just going to take a punt on this before Christmas to be honest, I'm prepared to put a grand in and see what happens. Let's face it, it isn't going to make me rich but more than anything I just want to test the water.

Will post an update or the results in January sometime if I remember.

I suppose the question now is when exactly to take the plunge, I have a FTSE short position waiting to snag at 5950 on my spread betting account. Certainly don't profess to have any special knowledge in any of this, i'll just close the ETF if it all starts to go pear shaped in January and at least I'll have the consolation of seeing some of my LTBH investments strengthen a little.

XUKS is the one I've posted in the link..
Heres a chart plotted against the FT100...so its working reasonably well..
The chart is a weekly timeframe and the lower indicators are less volatile than the daily timeframe in my previous post...you can see where the buy/sell timing positions come in..