Under the hood, new ETFs are same tools used for “portable alpha”
Feb 2nd, 2007 | Filed under: Portable Alpha & Alpha/Beta Separation“These ETFs Bring Hedge Fund Tactics to the Mainstream”
By: Rob Werry, SmartMoney.com
Published: January 31, 2007
For individual investors, ETFs are the easiest way to satisfy the beta requirement in an “alpha-centric” portfolio. This article illustrates how those ETFs now contain ingredients that are more exotic than you may have thought. No longer are ETFs simply bundles of stocks. Now, 2X levered and -2X levered (i.e. 2X short) ETFs provide individual investors with essentially the same tools used by institutions for “portable alpha” and its related strategies.
Behind the scenes, these ETFs are the same bundles of derivates used by institutions. For example, the ProShares Ultra Short ETF uses futures and options to allow investors to hedge particularly aggressive long bets. Institutional investors do essentially the same thing. Their much heralded “Portable Alpha” involves using futures and options to isolate alpha - only without paying an intermediary (ProShares) to package it for them.
So as this article says, using these products puts individual investors “next to hedge funds and big institutions”.
the question is how good the beta will be over the long run in this etfs