A.I.M. For Exchange Traded Funds

[ls7550]

Hi Cindy.

Would a portfolio filled with 2x funds managed by AIM work well?

Yes for stock price volatilty capture (up/downs), but no for price appreciation capture. AIM serves as a mechanism to capture (a) price appreciation, (b) volatility and (c) downside cost averaging (loss limitation).

2X funds generally wont provide 2X returns over the longer term and may not even pace 1X after costs are considered. They're suitable only for volatilty capture and/or leveraging short term trends.

Conventional AIM targets a bit of all three types of a, b and c investment benefits, 2X funds tend to reduce that down to more of (b) at the expense of less of (a) and (c).

This is where the 2X Ladder concept that I outlined comes in as that scales up AIM like volatility capture benefits, such that less of (a) and (c) isn't so much of an issue.

Ladder is a lot more difficult to describe than it is to use in practice. Here's a link to an example calculator and if you spend a little time experimenting I think you'd soon get the general idea.

http://www.jfholdings.pwp.blueyonder.co.uk/cindy.htm

I'm not leaving that link up for very long, as I don't really want someone just pinching the idea and then selling it on as their own work, so I'd suggest you make a copy of the web page onto your local PC.

Studying the example you'll see that the potential volatility capture gains can be good, but it also carries risks (stock price breaking out below the bottom price level).

One way that you might use the concept is perhaps 50/50 divide your total fund, buying stocks with one half and then applying the other half to the Ladder style. Rebalancing periodically back towards 50/50 levels.

You can tune the top and bottom price range and step sizes according to your own fund size value and personal risk tolerance levels.

Best. Clive.