Top Advisors Corner

David England: Plan B--Part II

David England

David England


Today, I continue with my series per your question, “Are there other securities that go up when the market goes down?”  In order to provide a sufficient answer, I use three inverse market ETFs and one Bear Mutual Fund: 1. ProShares Short DOW 30 ETF (DOG); 2. ProShares Short S&P 500 ETF (SH): 3. ProShares Short ETF (PSQ); 4. Rydex Inverse S&P 500 Strategy Inv. Mutual Fund (RYURX).  All are inverse funds and designed to go up when the index they track goes down.  


I designed today’s chart to see if these inverse (Bear) funds went down when equities (stocks) rallied during the 2007-2009 down turn.  Unfortunately, due to space limitations I can only use one index (S&P 500) as a comparison.  In an apple- to- apple comparison, each fund should be compared to the index it tracks. Currently, there is less than a 1.3% return spread between all three major indexes.  While the one mutual fund (RYURX) requires a hefty minimum initial investment, all of the other funds can be purchased through many online brokerages and also can be purchased with only one share as a minimum investment.

You can see the performance of these inverse funds vs. the market (S&P 500).  During this time frame, the S&P 500 dropped over 55 percent.  All four Bear-inverse funds performed as designed and were up as follows: PSQ +75%; DOG 77%; SH 87%; and RYURX 90.36%.  It is interesting that all Bear-inverse funds were up a lot more percentage wise than the S&P 500 was down. Keep in mind that past performance does not dictate future returns.  

This data helps answer your question: “Are there other securities that go up when the market goes down?” Unfortunately, we will not be able analyze the results during the 2000-2003 down turn since most of these funds were not trading at that time.  Next week, I conclude with my thoughts on what investors can do during downturns.

Plan your work, work your plan, and share your harvest!

David England
davidoengland.com