On inverse ETFs, there's been a lot of news, including this
item:
Inverse exchange-traded funds, such as those offered by Horizons BetaPro in Canada, or Rydex in the U.S., offer a double, or sometimes a triple, exposure to market movements — on the long side, and on the short side. Some investors have found, to their chagrin, that they haven't received nearly that profit, and in fact have lagged the index returns by considerable margins.
There are two basic reasons for this. The first is that inverse ETFs rely on futures contracts that are settled at the end of the day. The next morning is a fresh start. The investor gets double the exposure, bearish or bullish, for that particular day, and that day only.
The second reason is that markets may not trend. A trending market — bull or bear, sees consistent, albeit non-cumulative gains on one side of the trade. A volatile market with no consistent direction, however, offers something different, deep disappointment probably being foremost.
"There are bodies and scar tissue all over the place to show this," says Mark Yamada, president and CEO of Pur Investing, a Toronto ETF shop.
On Yamada's shop, there's
this. I find all of this fascinating because he's among three or four Toronto-area managers that are using passive ETFs actively, some of whose names have cropped up here before, e.g.,
Venable Park, perhaps
Wilfred Hahn.
Obviously, there's a broader discussion of investor education that needs to be tapped, not just prospective risk management and how much can be communicated through prospectuses (which, I'll bet, few investors read, and which, at the same time, contain all the obligatory — and self-exculpatory — boilerplate from the law firms).
I am doubtful that the new IIROC guidelines will make a whit of difference as to how investors will try to play market trends: leveraged or unleveraged ETFs. For far too many "investors," whether it's corporate bonds, small-cap stocks or real estate, it's a loaded revolver with only one blank. (There must be a Paul Simon song here about [s]50 ways to lever your loves[/s] "50 ways to lose your wealth.")
(And I hated that song, when I was growing up!)
Webring
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