Assuming one has $100k in their portfolio. Cant you just buy $100k worth of ES futures on margin and take the remainder of cash and invest in short term yields.. woudlnt this guarantee a % performance better than the S&P index?? What am i missing? --MIKE
The ES is priced to underperform the S&P by the amount that you gain based on the cash investments. It is arbitraged to that level.
But if one invests let say $10k in ES futures & other $90k in S&P 500 itself he would definetely outperform S&P 500.
what is the short term interest used? 3 month T bill I suppose. In times of higher long term interest rates, you could invest the cash portion in a high yield bond fund Then use a simple timing system that in itself beats the S&P or you time the market with one contract, always in the market with the second. You can vary that ratio,add a 3d or 4th contract to use leverage depending on the type of market . Just throwing around some ideas ...
You've only increased synthetic beta through gearing. Outperforms on the upside, underperforms on the downside.
It's basically leveraged synthetic indexing, a few mutual funds do this quite well. 2 times upside of the S&P, but 2 times downside the other way.
Right, but synthetic indexing typically wouldn't entail any spot-position in addition to the futures position.
One of my favorates ... 2% better than SP500 equity, but a lot of work http://www.interactivebrokers.com/en/general/education/investmentStrategy.php