Two ETF Reshuffles

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For readers who are tracking my 10 Clean Energy Stocks for 2009 portfolio, take note that I now think that SDS is a lousy hedge.  So in the model portfolio I’m personally tracking, I replaced each dollar of SDS with $3 of cash and $2 short SPY, an ETF which tracks the S&P 500.  Because I’m tracking the portfolio as a way to see how well a reader would perform, I did the replacement at the closing prices on Feb 11th, the day the article where I explained why not to use doubleshort ETFs (and short, ultras, or triples, for that matter.)  

Here’s how the portfolio stood as of the close on February 12th:

Company  Ticker Change since 12/27/08 Dividend & Interest
The Algonquin Power Income Trust AGQNF.PK +16.73% 0.87%
Cree, Inc. CREE +42.83%  
First Trust Global Wind Energy ETF FAN -6.42%  
General Electric GE -26.86%  
Johnson Controls JCI -20.90%  
New Flyer Industries NFYIF.PK +2.14% 0.77%
Ormat ORA +9.80%  
Trinity Industries TRN -23.87%  
Warterfurnace Renewable Energy WFIFF.PK +30.98%  
-2x  S&P Depository Receipts + 3x Cash 3x $ – 2x SPY  +2.92%  
Net Change +2.91%

For comparison, the iShares S&P Global Clean Energy Index (ICLN) is down 5.6% and the S&P 500 is down 4.3% over the same period.  The reason that the 2x short + cash position is only up 2.92% instead of 8.6% is because of the underperformance of SDS.  (Here’s the brief version: Suppose the underlying index starts at $10, drops $1 (10% of $10), and then to goes up $1 (11.11% of $9) for no net loss or gain.  If you do the math, the corresponding short (x-1) or ultra (x2) ETFs will fall a net 2.2% over the same move, and the ultrashort (x-2) and the triple (x3) ETFs will fall a net 6.7%.)

Problems With Contango

The other reshuffle I did was in my real portfolio.  A couple weeks ago, I wrote about why I bought OIL, a tracker for crude oil in the futures markets.  A reader pointed out that this (and most other oil tracking ETFs) suffer when the futures market is in contango (i.e. the futures prices are higher than the spot price, as they are now.)   Although oil futures market contango is a strong sign that price will rise, I decided that expected gains weren’t enough to tempt me to stay in the market, so I sold my position.

Now that crude has dropped further, I’m considering a replacement position in USL, which tracks a basket of futures contracts over the next 12 months, rather than just the closest futures contract tracked by OIL (the same reader brought this one to my attention.)  USL is likely to lose less money than OIL when the market is in contango, because the futures market flattens out as you go out further into the future.  But I’m still on the fence with this one.


DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.



  1. I’m very interested in this model portfolio so thanks for updating it.
    Unfortunately, I don’t own the full portfolio and haven’t done nearly as well because of it. I’m wondering if now is precisely the wrong time to buy CREE and Waterfurnace.

  2. It’s impossible to know what the right time to buy is, but at these prices, those two stocks would probably not made my list.
    If I were buying today, I’d be buying the four that are down and new flyer.

  3. I hope it helps. I should have also said above that I would also include some sort of market hedge if I were buying now (such as chorting SPY as discussed above.)
    Despite the massively battered down level of the market, I still see significant downside risk.

  4. Yes, I hear that clearly. Unfortunately my IRA does not allow shorting. I had been relying on buying and selling a short ETF but now see a real advantage and need to open a taxable account for hedging.

  5. D_Lane: you may also be able to apply for options permission in your IRA. If it is granted by your broker, you should be able to sell covered calls and buy puts. These can both be used for hedging.

  6. I hear you. I just wish I knew how to navigate the strange world of calls and puts. I know you’ve written about it here and I trust you thats its a great strategy.
    I’m still learning how to invest in stocks directly and have yet to put energy into learning what options trading can do for me.


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