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December 01, 2013 at 03:27 PM
While some publications are bemoaning so-called bad conditions for short sellers, the truth is that groups of ETF investors have been doing quite well with certain bets.
The Wall Street Journal proclaimed incorrectly on Nov. 25, for instance: “It’s been a tough year for short-sellers.”
“The Dow Jones industrial average rose for the seventh week in a row,” the article stated. “About the only people gnashing their teeth are short sellers, the investors who make a living betting that stocks will fall in price rather than rise. Short seller hedge funds are down nearly 15% from the start of this year, through October.”
But it’s incorrect to assume that being a bear in 2013 has been a losing proposition. Let’s look at three markets where bears have feasted:
Shorting Long-Term Bonds
Here’s a major investment theme that’s been hidden in plain sight: rising bond yields. And since bond prices move in the opposite direction as bond yields, shorting long-term bonds has been a great trade for bears.
In the ETF market, daily leveraged 2x and 3x long-term Treasury bear ETFs like TBT and TMV have seen their share prices surge between 27% and 37% year to date. When long-term Treasury prices fall as they have been, funds like TBT and TMV are designed to increase in value.
Shorting Volatility
People that say stock market volatility is too high haven’t been paying attention. Over the past year, stock market volatility as measured by the S&P 500 CBOE VIX has fallen around 20%. And while the VIX has had sporadic surges this year, it’s been short-lived.
