Basic concept test: A long term short on Natural Gas futures. S&P500 in blue for comparison. Green strategy holds 90% cash and 10% short on UNG (a long natural gas ETF). Weekly rebalance. I see it as similar to shorting VIX futures. You get paid to store a rapidly declining asset, but you don't actually store it (which means you're on the hook for whatever the market price is on delivery. Long run storage premium should be much higher than inflation in natural gas prices)
There are several ways to get downside exposure to Natural Gas through ETFs:
1) if possible, borrow and short UNG (roles long position in natural gas futures)
2) buy KOLD (-2x daily inverse natural gas from ProShares)
Since KOLD was just started in 2012, I simulated shorting UNG for the backtest. However, for actually implementing a position I would use KOLD (Use leveraged ETFs at your own risk. Please do your research and understand how they work before using them).
Has it worked recently?
Yes. KOLD has been a terrific hedge just as other hedge ETFs have sold off. In almost 2 months GLD (gold), EDV (treasuries), and LTPZ (TIPS) have had significant corrections.
SPY (S&P500) is up just 1% in this period.
Results are encouraging for the use of KOLD as an all-season hedge
No comments:
Post a Comment