To Use or Not Use Short or Contra ETFs

ITA Wealth Management readers know that the ultra-short ETF, SDS, is held in several portfolios. That position may need more thought based on information from a recent article in the AAII Journal. SDS is an ultra-short or contra ETF. What that means is the SDS is designed to move in the opposite direction as the S&P 500. In fact, it is to move twice as fast in the opposite direction as the S&P 500.

My idea for using the SDS was a hedge against an over-bought market condition, not dissimilar to what we have right now. It was not my intention to use SH or SDS as day trading vehicles. Instead, I planned to hold them for months or until such time as the broad market retraced some of its current gains. Then I read the AAII Journal article, "The Individual Investor's Guide to Exchange-Traded Funds 2010." Let me quote directly from the article.

On page 16 of the AAII October issue we read, "Funds that move with a greater magnitude than the index they track use leverage. For every dollar invested, an investor has the potential to earn double or triple the return he would otherwise earn. At the same time, the magnitude of potential losses is two to three times greater. In other words, these are very risky investments. [Read more…]

Portfolio Performance Update: 15 October 2010

The data table below includes updates for the ten portfolios tracked using the Captool software. Those portfolios are current through 9/30/2010 and the ten portfolios tracked using the TLH spreadsheet are updated through 10/15/2010. If you have never seen one of these Portfolio Performance data before, the last two columns, Sortino Ratio (SR) and Retirement Ratio (RR) are significant in that they measure the performance of the money manager with respect to risk. Both SR and RR use semi-variance rather than mean-variance to calculate portfolio risk.

The internal rate of return (IRR) of each portfolio is compared with Vanguard's Total Market Index Fund, VTSMX. In addition, those portfolios tracked using the TLH spreadsheet are compared with a customized benchmark, the ITA Index.

Take a little time to look over the data table and you will see that most of the portfolios are doing very well with respect to the two benchmarks.

 

Portfolio Performance - 10/15/2010

Portfolio Last Update Launch Date Tracking Tool Port. IRR ITA Index Diff Port. vs. ITA Index VTSMX IRR Diff. Port. vs. VTSMX Index IR SR RR
AA-Mosaic 09/301/2010 07/21/1999 Captool 1.95% NA NA -0.42% 2.37% 0.05 NA NA
Curie 10/15/2010 12/26/2007 TLH SS 3.5% -0.7% 4.2% -3.0% 6.5% NA 9.2 2.1
Mosaic2 09/30/2010 07/19/1999 Captool 4.37% NA NA -0.61% 4.98% 0.15 NA NA
Newton 10/15/2010 06/02/2008 TLH SS 8.4% 4.3% 4.1% 4.2% 4.2% NA 10.5 10.5
Passive Port. 09/30/2010 12/01/2000 Captool 4.73% NA NA 0.02% 4.71% 0.68 NA NA
Schrodinger 10/15/2010 12/01/2000 TLH SS 4.9% 13.8% -8.9% 1.9% 3.0% NA 11.1 11.1
Jane 09/30/10 02/14/1997 Captool 8.69% NA NA 3.07% 5.62% 0.53 NA NA
Einstein 10/15/2010 06/30/2008 TLH SS 14.1% 24.2% -10.1% 8.2% 5.9% NA 6.3 6.3
Gauss 09/30/2010 02/19/1997 Captool 8.86% NA NA 3.04% 5.82% 0.22 NA NA
Kepler 10/15/2010 11/01/2008 TLH SS 22.7% 33.4% -10.6% 18.8% 3.9% NA 5.9 5.9
Scrappy 09/30/2010 08/14/2008 Captool 10.53% NA NA -4.12% 14.65% NA NA NA
Bohr 10/15/2010 08/14/2008 TLH SS 11.9% 15.8% -3.9% 1.5% 10.4% NA 9.8 8.2
Kenilworth 10/15/2010 08/18/2010 TLH SS 42.0% 32.5% 9.5% 71.1% -29.1% NA -1.3* -1.3*
Projects 09/30/2010 12/01/2000 Captool 4.93% NA NA 0.02% 4.91% 1.31 NA NA
Washington 09/30/2010 06/18/1999 Captool 2.77% NA NA -0.19% 2.96% 0.27 NA NA
Maxwell 10/15/2010 12/25/2000 TLH SS 0.3% 2.0% -1.7% 2.9% -2.6% NA -1.4 -1.4
Adams 09/30/2010 06/18/1999 Captool 2.84% NA NA -0.19% 3.03% 0.70 NA NA
Euclid 10/15/2010 06/30/1999 TLH SS -1.7% 0.4% -2.1% 2.9% -4.6% NA -1.6 -1.6
Jefferson 09/30/2010 03/13/2008 Captool 5.36% NA NA -3.63% 9.26% NA NA NA
Madison 10/15/2010 03/13/2008 TLH SS 5.9% 1.5% 4.4% 6.3% -0.4% NA -0.7 -0.7

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