Mish's Global Economic Trend Analysis Message Board

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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: mishedlo who wrote (91349)	12/9/2008 9:31:23 AM
From: forceOfHabit	Read Replies (1) of 116555

mish, Since you don't even mention borrow fees in your reply, I assume you are in fact ignorant of what they are. I'll give you a hint. They are not bid/ask spreads, nor management fees (like those charged by an etf), nor interest paid on short proceeds, nor dividends. Do a little research and I'm sure you can figure them out. But that's not the main issue. The main issue is rebalancing (is this another new word for you?). Mish says (post 91272) re the apparent underperformance of inverse etf's: The problem is slippage. [blah blah blah] Hedged Growth, our long short strategy has no such problems. During the [blah blah blah] part of the above post you point out that a double inverse etf with a strategy of attaining -2X the daily returns of a stock or index must rebalance daily to achieve this target. Good point. You remain silent (blissfully unaware perhaps?) on how volatility affects the expected cost of rebalancing. Then you claim that "Hedged Growth, our long short strategy has no such problems." That could be true only if they never rebalance. Which would not conform to the published mandate of the fund. So either a) your "Hedged Growth" portfolio ignores its own mandate or b) it has the exact same type of slippage (due to rebalancing) as an inverse etf and you are ignorant of its return characteristics and its volatility exposure. Which is it? Inquiring minds want to know. Wait! Another possibility has occurred to me. c) you are unwilling or unable to present a complete picture of the risk/reward profile of various investment strategies to your readers. Well, never mind. I expect they can find other more thorough analysis elsewhere. (This link, courtesy of Webster Groves, is one such source: proshares.com ) habit

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