ETF’s

Fun with Dick (AGQ) and Jane (ZSL) and Spot (SLV)

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Seventeen years ago we saw the first leveraged mutual fund with daily reset.  Now we have dozens of them along with ETFs that work the same way.  Yet after all this time, many investors still don’t understand what leveraged funds can and cannot do.  Even professional investors ignorantly called these products “failures” because the long-term performance is not a multiplicative factor of the unleveraged performance.

Numerous hypothetical examples attempt to “prove” that leveraged funds will lose money over time.  To paraphrase a famous line: “Hypos?  We don’t need no stinkin’  hypos.”  Why use hypothetical examples when we have real-life actual examples right in front of us?

Today we will examine the performance of leveraged performance over more than one day.  This is not rocket-science.  It is elementary school math.  So in our real-life example I will call on some old friends from elementary school: Dick and Jane, and their dog Spot.

Being just a dog, Spot doesn’t know much math so he just follows the prevailing price, which is why it is called the “Spot” price.  We will use silver to illustrate.  The iShares Silver ETF (SLV) doesn’t buy stocks; it holds actual bars of silver in an attempt to track the spot price.  Therefore, SLV will represent our Spot.

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ETF Stats for April 2011: 1,216 and Counting

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A barrage of product introductions in April resulted in 23 new ETFs and 20 new ETNs coming to market.  The number of launches matches the 43 in June 2008 while falling short of the record, 50 in January 2007.  The month-end quantity now stands at 1,216 (consisting of 1,053 ETFs and 163 ETNs).  Actively-managed ETF listings remained unchanged at 34.

April became the fourth month in a row without any closures.  However, the streak ends there as BXDD, Barclays’ 3x no-reset inverse S&P 500 ETN, becomes the first casualty of 2011 later this week.  The four-month stretch of no closures is the longest since 2007.

Trading activity plummeted in April, with total ETP dollar volume declining 30% to less than $1.3 trillion.  There were only 13% fewer trading days than March, so daily trading activity was down as well.

The number of ETFs in the Billion Dollar Club, those averaging more than one billion dollars in daily trading activity, dropped from eleven to just seven.  However, those seven funds accounted for more than 56% of all ETP dollars traded.  New to the list this month was iShares Silver Trust (SLV), which saw unprecedented trading activity of $67 billion due to the strong rally in silver.  SLV was the third most active ETF behind SPDR S&P 500 (SPY) at $374 billion and iShares Russell 2000 (IWM) at $84 billion.

Products averaging more than $100 million of trading per day numbered 67, a decrease of eight from March.  Those 67 funds, just 5.5% of all ETPs, accounted for 89% of all dollars traded.

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