Portable Alpha Daily

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Friday, September 15, 2006


Commentary – You may have heard that ProShares, a subsidiary of ProFund Distributors Inc., petitioned the SEC yesterday for 66 new ETF’s. I read about it first from Roger’s blog, who found it on Seeking Alpha which was linked to IndexUniverse. Witness the all powerful blog in action.

Aside from the initial surprise of so many new ETF’s at one time, (seriously - 66?!?), I’m actually quite excited about the possibilities. Our management company has a pretty good relationship with both ProFunds and Rydex, and we’ve grown very comfortable with their respective fund families. In fact, they’re the only fund companies we use. They cater, in my opinion, to active management strategies and those investors seeking portable alpha.

ProShares is trying to bring leveraged long and short ETF’s to the table, both within index and sector investments. Those investors who avoid using inverse or leveraged funds are really doing themselves a disservice. There are a lot of ways to outperform the market, some easier than others, but investing in an inverse or leveraged fund and actively managing it when the market turns bearish is one of the easiest ways I know of. By the way, there’s a huge difference between investing in an inverse fund and “shorting,” which basically involves borrowing money. We don’t short stocks in our managed accounts nor do we recommend it to our subscribers, but we’ll definitely use inverse funds.

I’m not sure how these new ETF’s will perform once released. But based on our experience with ProFunds, I imagine they will quickly become very powerful and popular investment tools. We’ll probably wait until the summer of 2007 before we incorporate them into our strategies, mostly because it looks like the public offering will be 75 days after the filing and we need a minimum of six months of historical data to back-test the funds inside our analytics.

Short-Term Technical Indicators – Only three strengthened overnight: the DJIA MACD and its 9-Day MA and the S&P 500 15-Day Stochastic. It looks like today will be good for stocks, at least based on the futures.

Long-Term Market Model – Bullish since August 23rd.

Investor Sentiment – The VIX increased slightly but the VXN eased a bit. All three Put / Call ratios jumped modestly in response to yesterday’s economic reports.

Asset Allocation – 75% to 85% invested within the actively-managed portion of the overall investment portfolio. 15% to 25% in cash or bonds.

Beta Exposure and Portable Alpha Generation

Top Rated Major Market Derivative – Fidelity NASDAQ Composite Index (ONEQ)

Top Rated Style-Box Derivative – Morningstar Small Cap Core (JKJ)

Top Rated Sector Derivative – Dow Jones iShares Real Estate (IYR)

Today’s Top “Buy” Recommended Stocks
  • NVR Inc. (NVR)
  • Piper Jaffray Companies (PJC)
  • Veritas DGC Inc. (VTS)
  • Sequa Corp. (SQA-A)
  • Lehman Brothers Holdings Inc. (LEH)
Today’s Top “Buy” Recommended ProFund Mutual Funds
  • ProFunds Internet Ultra Sector (INPIX)
  • ProFund Real Estate Ultra Sector (REPIX)
  • ProFunds Ultra OTC (UOPIX)
  • ProFunds Telecom Ultra Sector (TCPIX)
  • ProFunds Technology Ultra Sector (TEPIX)


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