More on leveraged and inverse ETFs, and natural gas

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More on leveraged and inverse ETFs, and natural gas

Thursday, August 20th, 2009 | Economics |

The other day I mentioned that inverse and leveraged ETFs (such as 2x ETFs) could be dangerous. I wanted to buy some natural gas stocks, which are crazy low right now. I looked at HOU and found this description:

Horizons BetaPro NYMEX Crude Oil Bull Plus ETF (the Fund) seeks daily investment results, before fees, expenses, distributions, brokerage commissions and other transaction costs, that correspond to two times (200%) the inverse (opposite) of the daily performance of the New York Mercantile Exchange (NYMEX) light sweet crude oil futures contract for the next delivery month. The Fund is managed by BetaPro Management Inc. ProFund Advisors LLC is the portfolio manager of the Fund. ProFund Advisors LLC serves as the investment adviser and provides management services to Horizons BetaPro NYMEX Crude Oil Bull Plus ETF.

That bolded part means it’s a 2X inverse ETF, which is bad joojoo. Chart from 2008 to present here. Note the January 2, 2009 reverse split - they had to convert five shares to one to increase the stock price and avoid delisting.

Instead I bought UNG. Chart from 2008 to present here. It’s currently trading right at its 52 week lows. Equities are way overpriced right now, but some commodities are crazy low and poised for a takeoff.

Tags: etfs, investing

2 Comments to More on leveraged and inverse ETFs, and natural gas

Xeyes
August 23, 2009

You realize, of course, that you’re buying a closed-end fund at a substantial premium to NAV? That’ll drop like a rock if they start issuing shares again?

Just checking.

Les Jones
August 23, 2009

I’m not too concerned about the off chance they’ll issue more shares. I’m more interested in the 52 week high and low.
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