ETF word to the wise,
I read the article with a skeptical eye because I have been invested in some of these Ultra Long/Ultra Short ETFs. I looked at a Performance Graph of the three ETFs (SRS, IYR, URE) and found that his info was correct, BUT, if he had done the same analysis on Nov 20, he would have seen IYR = -61.17%, URE = -89.44%, and SRS = +132.63%. Does this lead to a different conclusion? Yes and no.
To me, either conclusion is misleading because they are both based on the result as of a particular moment in time. If you look at that same graph with only IYR and URE, you will see they are pretty well correlated. URE and SRS show their contrast, but some of the slippage is noticeable from June '08 to Sept '08 when IYR came back to the 0% line.
Another problem for me with the article is the fact that the author is a financial consultant and operates a fee-based service. I don't have anything against that, but his fee must be added to the expenses of whatever funds or securities he puts one into (slippage). How would the total of all those expenses compare to the inefficiency of the Ultra ETF? If he had simply shorted the IYR, wouldn't the interest charged for the short been higher than the inefficiency of the ETF? Do any of his clients have a positive return YTD? Did any of them have a gain of +132% on 11/20/08?
All I'm saying is that you need to understand the nature of the particular security (s) you are working with. Period! If you don't, it's your fault! If you look at one more Performance Graph of IYR, URE, SRS from the first day of existence for the two Ultras (Feb 15, 2007), you should notice that IYR and URE are smoothly in the downtrend from the first week onward with a consistent gap between them. SRS is much more volitile, but consistently above the zero line.
I think Ultra ETFs are worth considering.
Regards,
Bob
P.S. I am sorry I don't know how to post the above mentioned graphs.
