Top Performing ETFs

Discussion in 'ETFs' started by investics, Feb 17, 2009.

  1. Greetings!

    Tough day today. I have been trying to exploit a relative strength based approach to rank ETFs.

    DTO has been the top ranked ETF for a long time now.

    I have been making weekly posts on my blog:

    Please do take a read, I would love to hear your comments and promise to reply to ALL comments ASAP.

    I look forward to make weekly posts regularly.

    Good Luck!!

    PS:- I am a retail investor, I have nothing to sell, just curious to exchange ideas.
  2. DTO 20.70 last summer, now 242.80, are these figures for real.

    Oil hasn't gone down that much since last summer.

    It's surprising the volume figures for DTO and DEE aren't much higher.
  3. DTO is a double short on oil, and oil has plummeted from its highs last summer to the present. Yes, that would've been real nice to buy where it started at $25. And no, don't expect it to go much higher in this trend, if it goes any higher at all. It may go a little higher, but probably not by a lot if it does.
  4. is this daily, monthly? year to date?

    what about 3x etfs? many outperformed those posted by quite a bit today
  5. Winstontj,

    Thanks for your comment!

    One can perhaps do this on any time scale.

    My research shows that there isn't much change in the rankings on a daily basis.

    I prefer to use a weekly time frame for ETFs.

    I am sure things work different for stocks.

    I am yet to get my head around the 3x ETFs. Very very difficult to hold them over night.

    Leveraged And Short ETFs - 3 Flaws You Should Know
    Thursday January 8, 1:31 pm ET
    By Simon Maierhofer


    In order to be successful, a craftsman needs to have access to the latest tools and know how to use them effectively. But some tools are just too powerful to use for all jobs. A reciprocating saw for example is great for cutting steady and true pieces of wood. However, if you try to cut a small loose wood molding, the action of the blade with throw the molding all over the place.

    Just like a reciprocating saw, short ETFs are a great and powerfull tool but they have their quirks and limitations. Short and leveraged ETFs are 'power tools' and will punish the ETF investor if used irresponsibly.

    How to lose 70% in 30 days or less

    To illustrate, the UltraShort Real Estate ProShares (NYSEArca: SRS - News) dropped from $259 a share to $57 a share in less than a month. $10,000 invested in SRS would have been reduced to a mere $2,200. In less than 30 days, SRS dropped twice as hard as the S&P 500 (AMEX: SPY - News) and Dow Jones (AMEX: DIA - News) in the entire year.

    If used responsibly, there is no reason to shy away from short ETFs. You can thrive with short ETFs as long as you are aware of certain quirks. Our ETF Profit Strategy Newsletter has exploited the benefits of short ETFs for months.

    Short ETFs and taxes

    A look at current short ETF performance numbers and charts does not reflect the true picture. This is not because Morningstar and the Wall Street Journal have it wrong, it is simply the nature of the beast. Let me explain why.

    The two most established short ETF providers, Rydex and ProShares paid out capital gains tax distributions earlier in December (read related article here). The distributions were huge, affected nearly all short ETFs (also called inverse ETF or bear ETFs) and ranged from 4% to 86%.

    The ProShares UltraShort Industrials (NYSEarca: SIJ - News) paid a 44.3% short term capital gains distribution. From December 22nd to December 23rd, SIJ lost $47.85. This 44.3% drop is reflected in the chart. However, this 'one-day loss' is not accurately represented in the chart as investors will receive a cash payment of $47.85 per share.

    In essence, SIJ and any other short ETFs affected by tax distributions, maintained their value. However, part of the ETFs share price is paid directly to investors to account for a different tax treatment. If you own short ETFs within a tax-deferred account, this is a moot point.

    If you don't, the tax treatment is as follows: If you owned $10,000 of SIJ on the ex-dividend date, ProShares will send you a cash payment of $4,430. As SIJs gains were considered short-term capital gains, the $4,430 will have to be taxed as regular income.

    Not all short ETFs distributed short term gains. Some distributed long term gains or a combination of long term and short term gains. Long term gains are taxed at a more favorable 15%.

    Taxes are only payable to shareholders on record on the ex-dividend date (Rydex: 12-09-08, ProShares: 12-22-08). If you sell your shares before the ex-dividend date or buy them thereafter, you are not liable for taxes.

    Short ETFs and tracking error

    Short ETFs are designed to provide 100%, 200% or 300% the inverse (opposite) DAILY performance of the underlying index. It is a common misconception that inverse ETFs are made to attain 100%, 200% or 300% the inverse performance over longer periods, such as weeks, months or years.

    Several factors contribute to this effect. According to ProShares, the most significant one is index volatility and its effect on fund compounding. In general, periods of high index volatility will cause the effect of compounding to be more pronounced, while the lower index volatility will produce a more muted effect.

    A look at the ETFs and short ETFs tracking the financial sector illustrates the 'tracking-error'. Over the past six months, the Financial Select Sector SPDR (AMEX: XLF - News) lost 42%. The UltraShort Financial ProShares (NYSEArca: SKF - News) lost 18% while the Short Financial ProShares (NYSEArca: SEF - News) gained 15%. In a perfect world, SKF (200% inverse) would be up 84% followed by a 42% gain in SEF (100% inverse).

    Even on a daily basis, short ETFs don't always deliver on their promise. A few days ago, the Nasdaq (Nasdaq: QQQQ - News) was up 2.67% while the 200% inverse Nasdaq UltraShort ProShares (NYSEArca: QID - News) only lost 4.33%. Similarly, the S&P 500 (AMEX: SPY - News) shot up by 2.44% while the UltraShort S&P 500 ProShares (NYSEArca: SDS - News) fell by only 4.49%.

    Short ETFs are a valuable tool to hedge your portfolio or speculate on market movements. Nonetheless, if you want a mirror image of the underlying index, consider shorting an ETF that tracks the index rather than buying a short ETF.

    Respect the leverage and volatility

    Until a few weeks ago, double leveraged ETFs provided the biggest ETF thrill. Direxion expanded the limits with the launch of triple leveraged long and short ETFs. All the above points apply to Direxion with the difference that the results might be three times more pronounced.

    A few sips of an energy drink might give you just the right boost to fly through the day. But too much of a good thing might get your heart racing or give you sleepless nights. Double and triple leveraged ETFs are like a powerful energy drink - enjoy them responsibly.

    Leveraged ETFs (short and long) could lose you money even if the market is range-bound over a period of days, weeks or months without any net gains or losses. Here's what the leverage can do to your portfolio:

    To illustrate how leverage and tracking error can skew the performance, consider the following: Over the past 30 days, the Financial Select Sector SPDRs (AMEX: XLF - News) returned 0.19%. The Direxion Financial Bear 3x Shares (NYSEArca: FAZ - News) lost 23.48% while the Direxion Financial Bull 3x Shares (NYSEArca: FAS - News) lost 2.14%.

    The same holds true for the energy sector. The Energy Select Sector SPDRs (AMEX: XLE - News) gained 18.09% while the Direxion Energy 3x Bear Shares (NYSEArca: ERY - News) lost 39.40% compared to a 47.73% gain of the Direxion Energy Bull 3x Shares (NYSEArca: ERX - News).

    If leveraged ETFs can lose money in a range-bound market, imagine the bite if your triple leveraged bet is wrong. More important than anything else is the correct entry and exit point. Via our ETF Profit Strategy Newsletter we've predicted the folly of the bailout which drove the Dow from 11,000 to 8,500. We also called the market bottom at or below Dow 7,500 (the Dow fell to 7,445) followed by a rally into November/December which should see the Dow claw its way towards 9,150 (the Dow reached 9,088).

    The performance of our recommended short and leveraged ETFs was off the charts during the past three months. Nevertheless, leveraged ETFs (especially triple leveraged) should be used responsibly. If you can't stomach the volatility, it would be prudent to stay away. If you wish to become more proficient using short and leveraged ETFs, consider making the ETF Profit Strategy Newsletter your short and leveraged ETF investing headquarters.
  7. birdman


    Welcome to ET ... i look forward to reading your post. Btw interesting username you have chosen.

    The Birdman
  8. Birdman (interesting name as well)

    Thank you for your kind words and encouragement.

    Investing could get lonely, I am eager to interact with the investing community.

    Thanks a lot!
  9. Portfolio as of today: 18.FEB.2009 - 6.40 AM Eastern

    Rank ETF Entry Date Entry-Price Last-Price %-P/L
    1 DTO 02.Feb.09 189.91 242.8 27.85%
    2 SCO 17.Feb.09 52.51 55.66 6.00%
    3 SKF 17.Feb.09 158.21 169.1 6.88%
    4 DEE 02.Feb.09 86 97.86 13.79%
    5 SLV 02.Feb.09 12.28 13.93 13.93%

    More Details here:
    #10     Feb 18, 2009