How Reliable Is UYG Longterm?

[bolo00911@hotmail.com]

I am thinking of buying a few hundred shares of UYG - ProShares Ultra Financials (ETF).

My goal is to hold it long term of 10+ years. Will this be a good strategy?

Any chance of the stock going belly up and no longer exists in a few years? What are the chances this may happen?

Besides UYG I am thinking of other Ultra's for long term. Like the S&P 500.

Thanks

[aquaswim47]

I think that as long as we avoid a 30% gyration in the next 10 years, it might be a good fund choice. The problem with such a fund is that it is designed to get 200% of the gains and 200% of the losses. A loss factors more into the final return than any gain, due to basic mathematics. It is more of a trading vehicle than an investing one.

Loss 25% of $1,000 = $750
Gain 33% of $750 = $1,000

If you had a loss of 50%, you would be left with $500 instead. If you had a 66% gain, it equals $830, thus your result is you have 17% less than if you chose the single variable.

Thus, I don't like ultras but if you want to put 5% of your portfolio into one of them, it won't matter as much. I say this because I don't think the risk/reward is any good on them. You could miss out on a mega up-swing whereby instead of doubling your money, you triple or quadruple it and I helped you miss out on that extra return. However, due to the past performance of how the fund works, I don't believe holding these more than a week makes any sense. These are truly speculative trading vehicles and that's all! Try to convince people who endorse these products, however, as it is like talking to a brick wall.

As of Feb 1, 2007 (not enough time to draw adequate conclusions), UYG dropped from $72.2 to $2.98, a loss of 95.87% leaving you with 4.13% of your initial investment. The XLF equivalent lost 76.2% ($8.85 / $37.17) in the same time period. The S&P lost 42.5% (826.84 / 1438.06) whereas the SSO lost 75.3% ($21.84 /88.41). I think you can make a decision as to whether it is worth the risks. The short vehicles did okay. The SKF was up ($145.53/$68.60) equals 2.12 times better and SSO was up 40.2% ($79.99/57.05).

[bolo00911@hotmail.com]

So I should go for ETF's that are not ultra's and I should be better off?


Thanks

[aquaswim47]

Absolutely. Getting too creative in this market is perilous to every trader's health. I remember a person asking about double shorting the 30 day T-Bill. I think a single short is adequate. I really think the ETF-makers are doing investors a disservice by only coming out with the 200% short ETFs as investors should have the option of investing in the 100% or 200% short ETFs. Just take a 2 year chart look on Yahoo Finance comparing DXD to DOG from February 16, 2007 to February 13, 2009. DOG is by far, the more lucrative investment but it took over 2 years for that pattern to be demonstrated. For example, in November (February 2007 to November 2008), DXD had 80% plus returns while DOG had 45% returns. In a couple of months, DOG has taken over the lead with a 26.47% ($77.97/61.65) net 2 year return while DXD had a return of 23.35% (68.13/55.15). That is inclusive of today's gains, which gives DXD a huge advantage given that DXD's intra-days are slightly more than twice that of DOG. They are prescribed to have twice the daily moves up or down of the index.

[WallStRaider]

In short,UYG is an ETF that gains in value when financial stocks lose value. Do you really think financial stocks will be down... forever? They may be down for 2, 3, 5 or even 10 years, but in the long run, enough of them will recover. Unless they don't even survive the downturn and are nationalized.
Most long term investments are made with the view that an investment will gain in value.If it's a stock, you assume that the company will improve its products and make more money and your value as a shareholder is increased. I'm not sure if making a long term investment with the view that the financial industry is going to go kaput is a good idea.
And finally, the Bank index has fallen over 70%. Even if you are still bearish on the financials(and there does to seem to be a lot of reasons to be bearish) is it a good idea to essentially take a short position now?
Just my two cents.

[bolo00911@hotmail.com]

Originally Posted by STTGService

In short,UYG is an ETF that gains in value when financial stocks lose value. Do you really think financial stocks will be down... forever? They may be down for 2, 3, 5 or even 10 years, but in the long run, enough of them will recover. Unless they don't even survive the downturn and are nationalized.
Most long term investments are made with the view that an investment will gain in value.If it's a stock, you assume that the company will improve its products and make more money and your value as a shareholder is increased. I'm not sure if making a long term investment with the view that the financial industry is going to go kaput is a good idea.
And finally, the Bank index has fallen over 70%. Even if you are still bearish on the financials(and there does to seem to be a lot of reasons to be bearish) is it a good idea to essentially take a short position now?
Just my two cents.

I believe you have UYG confused with SKF.

UYG is bullish when the Banks do well.

SKF does well when the banks do bad. This is the inverse you are talking about.

[aquaswim47]

Originally Posted by bolo00911@hotmail.com

I believe you have UYG confused with SKF.

UYG is bullish when the Banks do well.

SKF does well when the banks do bad. This is the inverse you are talking about.

Eventually, the leveraged product implements the wrong futures contract and the thing comes tumbling down. Moreover, think about it, double the upside and double the downside. That has much more pressure to the downside.

[WallStRaider]

Originally Posted by bolo00911@hotmail.com

I believe you have UYG confused with SKF.

UYG is bullish when the Banks do well.

SKF does well when the banks do bad. This is the inverse you are talking about.

Oh I'm sorry, I assumed and made a mistake.
Well, IMO, financials have just gone through a huge bubble(Soros calls it a 20+year superbubble) and it'll take time to deflate. In the long run, the financial industry will remain a formidable sector of the economy.
However, UYG is essentially taking a leveraged position on financials. Suppose financials stop falling but start going nowhere for the next 5 years. The fund could seriously deplete itself by trying to create a situation where it doubles the performance of financial stocks.