ETF shorts

Tuesday, Jul 11 2017 by
4

With many shares on pricey valuations, I'm beginning to look at safe-ish ways of shorting the market. I have never shorted anything in my life and have generally been put off shorting due to the risks and complexity involved.

More recently I've been looking at ETF products which short indices such as this product which shorts the FTSE 250: http://www.boostetp.com/Product/32/equities/boost-ftse-250-1x-short-daily-etp/Pricing-Exchanges#.WWTAklH9mM8 There are good reasons for thinking the FTSE250 may suffer: we're seeing some signs of slowdown from retail shares in particular and I personally don't think the markets are fully pricing in Brexit risks. As negotiations develop I expect a few shocks to equity prices.

What I want to check is whether fellow investors have any words of warning about these types of products or whether you have any particular short ETFs you are a fan of? With this particular product I'm also unclear whether there's some sort of compounding effect or whether the value simply follows the FTSE250 inversely. E.g. if I put in £1000 and the FTSE250 halves in the next 3 years, does that mean I effectively make double my money (ignoring costs) or is there some other daily compounding effect I'm not clear on?


Filed Under: Short Selling, Funds And ETFs,

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18 Posts on this Thread show/hide all

LE4R 11th Jul '17 1 of 18

There's a related post here: http://www.stockopedia.com/content/shorting-the-ftse-176675/

I referenced this site which explains some of the pitfalls of inverse ETFs: http://monevator.com/short-etf-maths/

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paraic84 11th Jul '17 2 of 18

In reply to post #198831

Thank you! I'll check both of those links out.

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ambrosia 11th Jul '17 3 of 18

have you looked at spread betting or CFDs, theyre an easy way to short but be careful as those fee's add up

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jonesj 11th Jul '17 4 of 18

Beware of ETFs not tracking, particularly leveraged & short ones.

Here is an example article: http://www.valuewalk.com/2017/...

Last year I briefly dabbled in shorting Japanese Government Bonds.   A suggested ETF didn't track at all well.   However I found a US listed 3X short ETF run by Deutsche bank.   They had several years results & comparing it with the 3X long fund, ijolding both would only lose about 2% a year.    Anyway, Deutsche shut it after I held for a few months.    

  That's my sole experience of shorting so far.  Maybe I should expand on that


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jonno 11th Jul '17 5 of 18

I am a novice when it comes to shorting but shorted the FTSE 100 sometime ago using the ETF 'SUK2'. It is inversely geared to the FTSE times 2. So theoretically if the FTSE falls 1% it goes up 2% and vice versa, although the actual results are not as precise. To date the short is more or less even, I obviously opened it too early but things are looking slightly more bearish at present so you never know. If you are confident and have access to the right trading platform shorting individual stocks is likely to be more profitable, but off course entails greater risk. Those who shorted Carillion are no doubted well chuffed.

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jonny71 12th Jul '17 6 of 18

Hi can anyone recommend a platform to short individual shares? I'm with Barclays and this platform does not support shorting.

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nicobos 12th Jul '17 7 of 18

In reply to post #198927

IG markets for both Spread Betting and CFDs.

Anyone recommend a platform for shorting small caps? Doesn't seem possible on IG although they are good for going long on AIM / smaller stocks.

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cig 12th Jul '17 8 of 18
9

Simply not buying something is a cheap and low-risk way of being (relatively) short: your portfolio will mechanically outperform the market if you successfully pick things to exclude.

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willhampson 12th Jul '17 9 of 18
2

In reply to post #198939

Nicobos - have a look at spreadex. I personally prefer IG, but I think they also offer a good service.

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BlueFrew 12th Jul '17 10 of 18
1

In reply to post #198939

You can sometimes open short positions on IG with "unborrowable" stocks if you phone them up.

Spreadex are also good, but again for some positions you might have to phone up (I managed to open a short on Mysquare (LON:MYSQ) this week even though there isn't much borrow around).

It isn't very often that one has borrow but the other doesn't, but there was a situation with Petroceltic I had to close a short on IG, but Spreadex managed to get borrow a couple of days later so that I could reopen.

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nicobos 12th Jul '17 11 of 18

In reply to post #198963

Thank you both.

Mysquare looks like a great trading stock that you'd want to go long / short depending on sentiment so good to know there may be options out there.

Some of the small 'blue sky' penny stocks are ripe for shorting imho, especially when they get too frothy following some powder puff announcement. Great to have both options in your armoury. UKOG also springs to mind as one that may be worth looking at!

Sound energy is also one that looked like it would decline from c.70p recently but was 'unborrowable'. I appear to be better at spotting the worthless junk than shooting stars at the moment but unable to capitalise...

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aflash 12th Jul '17 12 of 18
1

Using your example, you are unlikely to double your money. To do so you would have to get in at the lowest price which was May and out when Armageddon arrives when you will not even be able to get a quote.

That said Short ETFs are very useful 1) for hedging and 2) for psychological reasons.

During Armageddon you cannot believe your favourite stocks are selling so low. Depressed and nervous you can avoid selling at the bottom by selling your Short ETFs and it will give you cash, at least at breakeven, to mop up bargains.

Returning to your example, 1MCS, it is a popular choice at the moment but I have not bought it yet partly because of the unit value, 56 pounds. It takes a big chunk of cash to have a meaningful holding.

In 2008-2009 and 2011 XUKS served me well between (from memory) 6 and 12 pounds. This is the Short ETF on the FTSE 100. It was not fantastically liquid and quite difficult to sell, so one thing to check is the ETF size and volume.

Another thing to check is the base currency. If it is in USD you have the additional complication of the exchange rate.
A lot of Short ETFs are. I use an USD account and hold a lot of 1 X Short ETFs for hedging purposes.
For example EUM is Short Emerging markets. When it was up a year or two ago I did not sell but bought more individual Emerging market ETFs. Since the Emerging markets are volatile it helps me hold positions in downturns.

The UK 250 index may be at a high but a 20% plus correction would be considered substantial. If you buy 1MCS at its Lo and sell at the top you make 20%. No more.

I use 1 X Short ETFs because they forgive errors in timing.
2 X and 3 X do not. As the futures contracts expire you get decay. I do buy them but have to keep the holding period short and be prepared to take losses.

As a general rule markets and individual shares fall much harder than they rise so Short ETFs are useful.

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nicobos 13th Jul '17 13 of 18

Sorry, I posted on the small cap thread but probably useful to ask again here:

Is there an easy way to find UK sector etfs on IG or another website that lists U.K. sector etfs which are tradeable on IG?

I find it quite useful to monitor sectors to check their momentum before looking at their constituent parts. For example, a share which is highly rated but in a dog sector may not be worth buying into until the sector is back in vogue. Likewise, it may be worth looking into shares in sectors that are in a strong upturn (a rising tide lifts all boats ! And the sunseekers should benefit the most...).

It can also throw up some useful shorting opportunities...

Much appreciated !

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paraic84 16th Jul '17 15 of 18
1

In reply to post #198899

According to Google Finance over the past 6 months the FTSE 100 has gone up 0.7% but SUK2 is -6.78%. Why the disparity? Fees? Poor tracking?

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paraic84 16th Jul '17 16 of 18

Thanks for everyone's comments; very helpful. I have noticed that quite a few of the Short ETFs I've looked at seem to have performed far worse than should be expected (e.g. see my previous post about SUK2) presumably because of the daily compounding effect. This is in line with the article posted above (http://monevator.com/short-etf...)  Does anyone know of a way of shorting an indice without a daily compounding effect...? I assume such a thing doesn;t exist!.

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Howard Marx 16th Jul '17 17 of 18
1

In reply to post #199923

Paraic, if you open an account with one of the major CFD firms (IG, CMC, InterTrader Direct etc) then you can freely short the major indicies (UKX, DAX, CAC, SPX, RUT etc) at a sub 1% margin.

Less liquid indicies can be shorted via shorting ETF's  e.g. iShares FTSE 250 UCITS ETF

The next few years may well be an upside struggle, so the ability to short could well prove useful.

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adatherton 6th Feb 18 of 18

In reply to post #198851

Don't think anyone offers the FTSE 250 as an index. Of course you can short-sell the normal ETF, whether you use CFDs or normal non-leveraged brokers.

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