AIM UK

[OldAIMGuy]

Good morning Clive, Re: AIMing for the Shorts............

Thank you for the interesting review of both the concept of SHORT selling and the use of 2X index funds.

There have been times when I thought of using the old i-Wave's "high risk" reading to initiate an AIM account in a 2X bear index fund following something like the S&P500. One would do so in a fashion like LD-AIM. In other words, one would, if successful, close out the position once the shares were exhausted.

There would also be an initial cash reserve in case the market wasn't ready to acknowledge the high risk nature of the market as of yet. So, if the market continued to rise while the IW was indicating high risk, we would continue to buy more of the 2x bear fund (market rising, bear fund dropping). In essence adding to the short position.

Eventually the pressures of the market place would start to weigh on the index values and we would see a drop. This would drive the bear fund upward. Using AIM's Sell side, we'd be parting out the 2x bear fund as its NAV started to climb. Eventually with the LD structure AIM would exhaust the actual shares in the holding. At that point, the market should be well consolidated, most of the fat trimmed, etc. I imagined then just closing out the position completely and using the residuals to start something on the LONG side of the market.

I have done something similar with a 2x LONG index fund in the past, but not as well planned. At that time the LD or leveraged AIM concept had not been developed so I continued the long position even in the face of a massive market run up. Silly me! After that, I decided that the fund should only be used when the IW was in its 'bullish' territory and would switch out of it at the first notice of a 'bearish' signal. The funds would then be redeployed to the relative safety of a long govt bond fund.

This method of turning on one fund type and turning off another has worked reasonably well since getting it started. The non-correlation worked to my advantage most of the time. I should probably look at it again and see if a rule set could be divined that would make it more useable for the long term.

My intent was to use the double funds only during the extreme portions of the market's risk range through a reversion to mean. In other words, use an LD-AIM'd BEAR fund from high risk back to middle average risk and use an LD-AIM'd BULL fund from low risk back to middle average risk. Use something with relative safety of principle and reasonable yield in the times we weren't using either of the extreme fund sides.

Whether the performance of the extreme ends was going to be enough to bolster the total return of the account to above average, I never finished testing.

Thanks again,
Tom