Tracking The Hedge

Many readers have sent in questions as to how I track the current hedged mutual fund positions I am holding. Since the funds are not a buy at this point, I have identified them as Fund A and B in the following graph:

(click to enlarge)

Fund A and B represent 10% each of total portfolio value. The Hedge was initiated on 6/12/08 and the beginning and ending values (7/25/08) are shown along with their gains and losses. Notice how Fund A disappointed most during this period with a loss of -10.39% while Fund B held up much better with a -5.05% loss.

This was offset by the short (SH) gain of +6.85%, while, for the same period, the S&P; 500 lost -6.14%.

At one point, this hedge was up +1.25%, but currently is down a meager -0.43%. The key here is to realize that, had you simply held on to your mutual fund positions and not sold or hedged, your losses would be worse than the S&P;’s.

My research has shown that hedges can work well by producing small but fairly consistent profits. In this particular case, that has not occurred yet, but the current loss is certainly manageable. As is the case with all investing, nothing works 100% all the time.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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