Since we gave you the justification for our picks on Monday, we also wanted to talk a bit about our trolling picks from last year – which earned us a rule named after us in the Financial Uproar Stock Picking Contest – namely, that any ETFs purchased had to be derived from stocks.
Yes, we were winning through September – but since there is no way to lock in your gains in a year long contest (by definition!), we had to ride the two short volatility funds through to the end of the year. So, yes, our “volatility tourism” failed us – but as we didn’t buy any of our four picks from last year with real money, it’s only worth a brief mention in a retrospective article one year later. That said, being short volatility is an interesting way for the proper investor with the proper stomach lining (I’m thinking iron or titanium) to place a levered bet on the S&P 500 that generally will go up faster than the index. Just do your research first!
|Ticker||Name||1/2/2014 Open||12/31/2014 Close||Price Return from Open||Dividend Return from Open|
|ARLP||Alliance Resource Partners LP||38.65||43.05||11.38%||6.40%|
|BXUC||Barclays ETN+ Long C Leveraged||258.47||299.86||16.01%||0.00%|
|XIV||VelocityShares Daily Inverse VIX||33.38||31.14||-6.71%||0.00%|
|SVXY||ProShares Short VIX Short-Term Futures||66.45||61.16||-7.96%||0.00%|
Okay, sure, BXUC was a playful pick as well – and, as noted by Scott Burley of ETF.com, sort of a sad footnote in ETF history. You see, daily rebalancing leveraged funds (which BXUC was not) are a ridiculously stupid fund for individual investors to hold more than… well, daily due to the constant leverage trap. They quickly diverge from what the typical investor would think that the leveraged funds do – but because they allow near-perfect intraday leveraged hedging, they will remain popular with institutional investors (and sharks) who need them for financial engineering during the market day.
BXUC, instead, set its leverage once, laid out how it would borrow money, and threw leverage and caution to the wind. If you started a fund with this method, say, at 4x leverage, it’s possible people could buy it at 5x or 2x leverage depending on how it moved – instead of rebalancing to hit a leverage target, funds of this type had an expiration target… and you didn’t lose money to rebalancing daily!
Of course, it was hard for average investors to understand, and the uncertainty of the leverage meant institutions stayed away – so, sadly, we might not see any more funds of the type. I, for one, will mourn our loss.
So, compare my funny picks last year to the S&P 500 – which returned 14.04%, dividends reinvested, in 2014. If I had just skipped the volatility funds we would have had an actual winner of a contest pick last year – worth at lest 5 or 6 pride points. As it is, I think it was worth the laugh.
How did you do in 2014?