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Strategies & Market Trends : Buy and Sell Signals, and Other Market Perspectives -- Ignore unavailable to you. Want to Upgrade?

To: Qone0 who wrote (89608)	2/8/2017 11:54:55 PM
From: John Pitera	Read Replies (2) \| Respond to of 218499

Thanks for your perspectives on the leveraged etf's...... you would almost think there would be a type shorting DUST in some ratio and hedge vs. being long NUGT that would be viable... I would think the quants and the A I algorithms would be taking care of that. The most egregious 3 X weighted ETF's that I have seen used here on SI and also by a few people I know are the vix ETF's several of them especially the weighted ones were real disasters to own other than for a few days every half a year.... Their price record was like really over priced out of the money options that would just decay away and lose you money owning them. there were 2 that were popular last year... they would show up on the stockcharts home page as among the most viewed symbols, so many people were looking at them and people were trading them uvxy is one that has had a horrible performance especially since early 2016. look the depreciation in the UVXY over the past 3 and 1/2 years. ironically there are several volatility days that show up between now and late April were this might be a good thing to own. here is a list of the option volatility ETF's etf.stock-encyclopedia.com Here is the problem with ETF's and the leveraged ones. --------------------------- Seth Klarman Shows Real Danger With ETFs By Lisa Abramowicz Feb 8, 2017 Many analysts have spent years criticizing exchange-traded funds. They’ve become louder over the years as ETFs became increasingly dominant, siphoning off a growing proportion of overall investor money in funds. This is *especially true of fixed-income ETFs, which have been rapidly gaining traction and have the added complication of trading like stocks but tracking less-active bonds. Critics say these funds are potentially dangerous and untested through a crisis,* but the complaints have largely fallen on deaf ears. Investors of all types, from individuals to hedge funds, have increasingly gravitated toward these funds for their low fees and easy access to entire asset classes. Debt ETFs in the U.S. attracted nearly $*100 billion over the past 12 months, boosting their assets by 20 percent,* according to Bloomberg data. Passive bond funds now account for more than one-fifth of the fixed-income market, according to one measure recently reported by the Financial Times. It's true that ETFs, particularly those focused on fixed income, haven't survived a crisis in their current form. But that's an exceedingly vague concern, and one that's been vehemently debated by regulators and fund managers alike. These aren't all that different from mutual funds, after all. Instead, Seth Klarman, the respected founder of the Baupost Group, put his finger on the broader, more tangible issue in a recent letter to investors. The dominance of ETFs is making markets less efficient, and this could end up causing harm. As Klarman wrote in his recent note, "The inherent irony of the efficient market theory is that the more people believe in it and correspondingly shun active management, the more inefficient the market is likely to become." Here's how this works: Most ETFs aim to track indexes. These indexes are usually *dominated by the biggest companies with the most public debt and equity outstanding. As money is funneled into these passive funds, it goes disproportionately to these big and leveraged companies simply because of their weighting in their indexes. Steady Gains The biggest U.S. investment-grade bond ETFs have grown steadily in the past few years Source: Bloomberg So as markets rise and cash pours into ETFs, these dominant securities will perform well relative to everything else. The longer this persists, the more a company’s bonds and stocks can generate returns that are superior to what their fundamentals suggest. The effects of this are significant. It means that bubbles can form and rapidly inflate relatively unchecked by active managers, at least relative to the past. And even if active managers come in and try to sell these companies short, they may be thwarted by yet another rush of flows into indexed funds. This is a more subtle danger, but the distortions are real. As markets become more inefficient, it becomes more likely that a surprise could set off a larger, disruptive response. Just think back to September 2015, when large high-yield bond issuer Sprint was downgraded several notches, spurring a furious selloff that bled into broader markets. Meanwhile, some asset managers are arguing that active managers now have a better chance than they have had in years to outperform indexes, especially for those who steer clear of bonds and stocks that are included in ETFs. Indeed, a broad swath of high-yield bonds that includes smaller issuances has steadily performed better than an index of the biggest, most-traded notes tracked by passive funds. Diverging Paths A broader high-yield bond index has steadily outperformed the biggest junk-bond ETF ETFs will continue to attract a substantial proportion of all new investor money coming into stock and bond markets. Investors appreciate these funds’ low fees and easy accessibility. "It is a tangible benefit that stands in stark contrast to the perceived perils of ETFs that are more myth than reality," Bill McNabb, chief executive of Vanguard Group, wrote in a recent column. While the perceived perils have indeed not fully manifested themselves, it is clear that ETFs are transforming the behavior of markets. And this may end up exacerbating mini corporate bubbles that pop in unpleasant ways.* bloomberg.com John