Happy October 🎃
Kareem from Share here. Starting this month, we’re trying something new. At the end of each month, we’ll take a look back at the top performing strategies on Share from the previous month.
September was a rough one, as interest rate hikes continue to drive flight to safer investments. So much so we only had one strategy that drove a positive return for the month. And that strategy is…. Bear Case 🐻
Dollar-cost averaging into Bear Case 🐻 would have returned 8.3% in September, and up to 27% at it’s peak. Check out the screenshot of our simulation below.
So what’s Bear Case? Basically, it’s an inverse ETF spread, which means it invests primarily in ETFs designed to profit when the market declines. This is a useful hedge if you want to protect your downside against market declines. It can also be useful if you believe the market is too expensive (as many people have for the past couple of years). Of course, it also works in reverse. If the market goes up, these ETFs will go down. Overall it’s a risky strategy and one that should be used with caution.
Let’s dig into the individual positions in this strategy a bit. Here they are.
The gains in Bear Case were primarily driven by SQQQ (+27%), the ProShares UltraPro Short QQQ ETF. This is a leveraged ETF (meaning it borrows or uses derivates to amplify returns) designed to return 3x the opposite movement of the QQQ ETF. There’s a lot packed in there. Essentially this ETF is designed to increase by $3 for every $1 negative price movement in the QQQ. If you’re unfamiliar, the QQQ is another ETF tracking the Nasdaq-100, which is basically a tech-heavy index. The biggest positions in the Nasdaq-100 are Apple, Microsoft, Tesla, Amazon, Google etc. When they go down, SQQQ should go up by more. If you think tech is overpriced, SQQQ is your friend.
Bear Case also gained a good bit by betting against the housing market, broadly speaking. REK (+11%) is the ProShares Short Real Estate ETF. This ETF is not leveraged, but designed to be the inverse of the Dow Jones U.S. Real Estate Index, which attempts to track the performance of U.S. real estate.
Put simply, Bear Case is a pessimistic strategy. But it’s a useful illustration that if you think the market isn’t going to do well, there are other options available. If you’re curious, play around with the simulation for the Bear Case strategy (and any other strategy, including building your own) using our simulator.
We’ll be back next month, hopefully with some better news.
Till next time,
-Kareem
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