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FactorShares Files Leveraged Derivative ETFs
By Dave Nadig | February 09, 2010 7:08 am

 

Just when you thought the ETF industry might be running out of good ideas, FactorShares seems to be serving up a half-dozen. Hitting Edgar this morning are the following products:

  • FactorShares S&P 2x US Equity Premium
  • FactorShares S&P 2x US Anti-Equity Premium
  • FactorShares S&P 2x US Equity Anti-USD
  • FactorShares S&P GSCI 2x Crude Oil Premium
  • FactorShares S&P GSCI 2x Gold Premium

 

Each ETF is a levered bet on a spread between two indexes, one of them always the S&P 500. The Equity Premium ETF will go long the S&P 500 and short 30-year Treasurys (through futures). The fund might do well if the equity market stays flat or rises, while bond prices collapse in a rate-raising environment. The “Anti-” version, meanwhile, makes the opposite bet, and the Anti-USD version extracts changes in the U.S. dollar from the S&P 500.

More interesting perhaps are the Oil and Gold ETFs, which go long the commodity and short the S&P. The idea is to capture patterns of returns that investors can find elusive. You want to capture solely the “flight to quality” nature of gold? The 2x Gold Premium ETF might do the trick. You want equity exposure, but you’re worried about the collapse of all “risky assets?” The 2x US Equity Premium one fits the bill.

There are a few caveats here. The first is that like most commodities funds, these new products invest in futures contracts, which means contango and backwardation can impact returns. Also, like most leveraged funds, all 6 ETFs are targeting a daily rebalanced bogie, which means taking a long-term position in them requires constant vigilance in monitoring real exposure. They’re also not cheap, carrying a 75 basis point management fee and total expenses estimated to be as high as 1.34 percent.

But overall, these are products that will genuinely offer new options for investors in sideways markets and shifting risk premiums.

 

 

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