Reader David emailed and had this to say about the recent discussion about the use of the SimpleHedge Strategy:
I have enjoyed your weekly newsletters and daily blog for some time. Thank you for sharing your knowledge and wisdom. I noticed a recent blog from ‘Foster’ concerning your simple hedge strategy where he used mutual funds as the long position. Some readers commented about using ETF funds.
Maybe my simple hedge will be of help to readers wanting to use ETF funds.
I set up my hedge on March 23 with 20% of my portfolio as follows;
10% in SH purchase price $75.69
5% in VBR (beta 1.22) purchase price $35.94
5% in VOE (beta 1.20) purchase price $29.33
as of 4/16/09 SH=-5.88%, VBR=+11.8%, VOE=+10.16%, Total hedge= +2.87%
I’m using ETF funds so I don’t have to worry about trading fee’s etc. I pay $8 per ETF trade.
I hope this helps some of your readers who may want to use ETF funds with the simple hedge.
To see what he has actually done, let’s look at my matrix again:
[Click on table to enlarge]
We have a slight discrepancy in total return, but that’s really not that important. What matters is that David has applied the hedge concept successfully to ETFs, since that is what he prefers using for his investments.
It does not really matter whether you use ETFs or no load mutual funds, as reader Foster described. What is important is that both understood the concept and applied it correctly.
I really have no preference either way, since my testing has shown that during some periods in time, ETFs prevail over mutual funds and vice versa.
I will continue tracking these two examples to show how they will fare in different market conditions.