Managed Funds How to profit in a bear market? :confused:

Hi invested,

Please excuse my basic question. If the markets continue to be cyclic, we're due for another bear market eventually. I realise that it's possible to profit from direct shares in a bear market by buying short options etc... I also see that the trading method of the Navra funds profit from volatility rather than gains to some extent, so they can profit even in bear market so long as it's volatile. Is there any other way to profit from managed funds in a bear market? If so, how?

Thanks,

Anthony

 

"Is there any other way to profit from managed funds in a bear market? If so, how? "


Good question.
A lot of the Fund Managers during the bear market pray, hope and say that there is nothing they can do because market is down.
If you find MF involved in short selling, trading futures and options you may survive.

 

Hi Tropo,

That makes sense... but I'm having trouble finding any such fund. Do you know if any exist, or what they might be called? (e.g. geared funds typically have "geared" in their name, but shat would a short-selling fund put in its name?)

Thanks,

Anthony

 

Maybe ones with Income - as in they generate the bulk of their distributions usings trading profits.

 

I can not help you with this one. I am not dealing with MFs.
You may search the forum.
You may have a trouble finding such a fund but I would think that small futures/options funds should exists.

 

Hi PinkEye,

Try a long/short fund...(AKA hedge fund)

Cheers,

Dan

 

Macquarie Asia Long Short fund

 

Ah "long/short" fund, thanks for the tip!

Is there a web site where I can see the historical performance of other funds which are not supported on the Compare Funds :: Managed Fund Comparison Charts and Statistics web site?

Thank you.

 

I went to the Macquarie Prime seminar in Perth last night, and followed up on a few things today. I'll leave the pros and cons to a different thread (although I thought it was well worth looking into it further).

But this strategy caught my eye, and I plan to run the figures over the weekend (I also asked them to post me a PDS, as the info pack they mail is really just a promo of whiz-bang scenarios).

Short Selling Shares. Macquarie Prime short selling, share shorting

How taking short positions can work to enhance your income

In times of low share price volatility and flat markets, investors looking for alternative ways to enhance income can use their Macquarie Prime Facility to earn interest on short positions.

Cash that is generated on short positions will be paid into the Funding Account. These funds will either offset the funding of long positions or earn interest if the Funding Account Balance is positive.

Case Study

You should note that this example is illustrative only. It is not a recommendation to make any investment in any share, and should not be taken as personal advice. With a Macquarie Prime Facility, you are responsible for selecting the share for any position you take out. As such, the performance of any share position will depend mainly on your own investment decisions.

Stuart believes that BHP is trading at fair value and he sees no short term impetus for a rise in its share price. Stuart is an experienced trader and decides to use his Prime Facility to take a short position over $100,000 worth of BHP shares in order to earn additional income. Stuart holds no other shares in his Prime Facility.

Stuart uses his Prime Facility to short $100,000 of BHP at $30. After 3 months BHP is still trading at $30 however Stuart feel the share price may now start to rise so he buys back $100,000 of BHP at $30.

The following table illustrates how Stuart can earn a relatively high interest rate on capital outlayed.

BHP Exposure = $100,000
Interest received on negative Funding Account Balance at 6.25% = $1,563
Stock Borrowing Cost at 2.5% = $625
Net income from Short Position = $938
Collateral (@ 10%) = $10,000
Return on Collateral = 9.38%
Return on Collateral p.a. = 37.50%

 

So if you're bearish, then the scenario above suggests that you can make money if the shares go nowhere, and of course more if they drop.

Sounds like hell for Goldilocks.

 

What happens in this example if BHP go to $35 and sit there for a while?

 

If it goes to 35 you could be in big trouble. Unconfirmed reports that the average life of a CFD account is 2 weeks.

 

The sea turtle lays approximately 300 eggs per year. Of those 300, 90% will hatch and try to make it to the sea. about 5% of those will even make it to the sea - about 15 of the original 300. Of that 15, only 1 will make it to maturity.
Is that 1 lucky, tougher, or more skillful than the rest? He has the same experiences as the rest, so it is doubtful he is more skillful. Maybe a combination of luck & toughness.
Obviously as he gets older, he gains skill in surviving, or he becomes part of the food chain.
The problem is, in this particular food chain, there are no second prizes. If the turtle wants to make it, he has to realise he is not dealing with your every day fishies, but a whole other animal altogether, one where natural selection ensures that only the toughest of the tough survive. There are no "mum & dad" predators, and no weekend warriors. Why? The smart ones stayed in a much more forgiving ocean, and the other ones all got eaten.

Not sure what this has to do with people successfully short-selling, I just like telling stories.

 

To answer my own question, having a stop loss set at an apropriate point would be important. My Aunt is playing with CFD's and currencies, and something along the lines of CFD's without stoplosses would be financial suicide.

 

Even trading fresh air without stop loss is financial suicide.
Short selling is a fast short term game. If you can not succesfuly trade long -
short selling is not for you !

 

You are wise, Grasshopper.

 

Pinkeye,

I recommend you buy.

Stan Weinstein's Secrets For Profiting in Bull and Bear Markets

Read the last chapter on trading funds through different pharses of the market. It is by no way short term trading with trades that can last years.