Sunday, February 01, 2009

Why GRZZX is the bear market fund of choice

I just realized that in all of my discussions about the Leuthold Grizzly Short Fund (GRZZX), I never actually showed a chart that compares it with the S&P 500 (SPY) or total market index (VTI). Here is a comparison over the past year:


The most important thing to notice is the day-by-day opposite price motions of GRZZX compared to SPY and VTI; that happens because GRZZX sells short a representative set of stocks. The fact that GRZZX has gained more (+60%) in 12 months than the S&P has lost (-38%), is just icing on the cake. The near-perfect inverse correlation and lack of exposure to derivatives is enough to make GRZZX the only bear fund that I'm comfortable owning right now.

The bottom line is this: if the S&P 500 were to lose 10% of its value tomorrow, GRZZX would gain approximately 10%. Even if GRZZX fell short and only gained 5% in that case, I would hardly complain.

5 comments:

Oleg said...

Jody, I was wondering if your fear of derivatives is still valid. All major derivative based funds continued functioning even through the worst times. Considering the limitations of GRZZX (redemption fee, some brokerages don't offer it, having to wait until the end of the day to trade, inability to put stop-loss order), I would say the risk of buying derivative based fund is worth the trade-offs.

Jody said...

Oleg,

Back in September there was a hiccup in one ETF that uses derivatives. I think there's a chance that we haven't seen the "worst times" yet, and if that's true then we can expect more than a hiccup next time.

Obviously I agree that if the derivatives market remains stable, then a less expensive ETF like SDS is a top choice for a bear fund, but I'm not willing to take that risk right now.

jeff said...

Jody...
I have read recently that Brinker feels that a bottom is forming and he is bullish. He seems to read the charts quite differently from you. As a scientist, can you tell me if there is any real science behind technical analysis/chart reading? It has always seemed like tea leaves to me. Where is the data behind all this?

Jody said...

Brinker has been calling the bottom for 14 months and 600 points ago on the S&P. If he just keeps calling a bottom, he will get it right eventually.

Yes, there is evidence that technical analysis works - it's in many of my past blog posts for example.

Jody said...

p.s.: Jeff,

You might want to read my "graduation day" post.