Blogs & Comment

Short selling leveraged ETFs

An email from David K. of Toronto nudges me to post on a point I had thought to include in yesterdays columnon short selling leveraged ETFs but left on the cutting room floor. It concerns the strategy of shorting leveraged ETFs and the distinction between historical and future volatility in markets
From the tableon the Horizons BetaPro website, it looks like a strategy of shorting both bullish and bearish leveraged ETFs would be profitable most of the time. However, the past year or so has been a rather volatile period and the year ahead will likely exhibit less volatility. In that case, the shorting strategy may not turn out to be as profitable as it would appear from the Sept. 31, 2009 table.
So, if one wants to give this strategy a try, some due diligence needs to be exercised to pick ones spots carefully. The odds of success would be higher if one were to target the sectors likely to be most volatile, one of which seemsto be the S&P/TSX Global Gold Bull/Bear index.
Another caveat might be the availability of ETFs to short sell. Brokers may not be able to find any units to lend to a short seller.