Leveraged Treasury Bear ETF Rockets Past 200-Day MA During October
This article was originally published on ETFTrends.com.
"Red October" and "Volatile October" are just a couple of monikers the past month can be aptly named after the capital markets were fueled by sell-offs. However, one ETF, the Direxion Daily 20+ Year Treasury Bear 3X ETF (TMV) , got a healthy dose of rocket fuel, which made it soar past its 200-day moving averages in the year-to-date chart, one-month chart and 5-day chart.
October wasn’t kind to U.S. stocks as the technology sector, in particular,got trounced with the S&P 500 following the Nasdaq Composite into correction territory before pulling itself out this week. The bond market saw its fair share of doldrums as a result of the whipsawing volatility as Treasury yields reached its own highs--a boon for TMV.
As bond prices were getting depressed, a movement into short duration by dogpiling into certain bond ETFs for the purposes of hedging benefitted TMV.
"TMV has a duration of -51--as rates get hiked and bond prices fall, it’s a great way for traders to generate alpha on the bear side, or hedge duration," said Sylvia Jablonski, Managing Director, Co-Head of the Capital Markets & Institutional Strategy Team at Direxion.
TMV Crosses 200-Day MA in YTD, 1-Month and 5-Day Charts
The benefits of October's volatility were evident in TMV's year-to-date, one-month and five-day charts below as the ETF traded above its 200-day moving average. TMV has provide investors with an 18.99% return thus far this year and 9.66% the last 12 months, according to Yahoo Finance performance numbers.
TMV seeks daily investment results before fees and expenses of 300% of the inverse of the daily performance of the ICE U.S. Treasury 20+ Year Bond Index. TMV invests in swap agreements, futures contracts, short positions or other financial instruments that provide inverse or short leveraged exposure to the index, which is a market value weighted index that includes publicly issued U.S. Treasury debt securities that have a remaining maturity of greater than 20 years.
Related: An ETF That Has America’s Values in Mind Can Also Outperform
Advisors Prefer Short Duration
At the Charles Schwab Institutional Conference in Washington, DC, ETF Trends Publisher Tom Lydon got a pulse on the markets through the lens of financial advisors--the same individuals who witness firsthand what investors are and aren't clamoring for when it comes to their capital allocations. One of the topics that came up was fixed-income investments and the move to short duration.
With the short-term rate adjustments being instituted by the Federal Reserve, investors can limit exposure to long-term debt issues and focus on maturity profiles. As a result, shorter durations are in favor on the fixed-income front to prevent prolonged exposure to a bond market that's seen its fair share of rising Treasury yields as of late.
"There's also lower duration on the bond ETFs that advisors are going into," said Lydon during "Countdown to the Closing Bell". "Long duration is frankly risky in a rising rate environment."
Examples of bond ETFs with short duration exposure include the SPDR Portfolio Short Term Corp Bd ETF (SPSB) , which seeks to provide investment results that correspond to the performance of the Bloomberg Barclays U.S. 1-3 Year Corporate Bond Index. Another option is the iShares 1-3 Year Credit Bond ETF (CSJ) , which tracks the investment results of the Bloomberg Barclays U.S. 1-3 Year Credit Bond Index, which includes debt that has a remaining maturity of greater than one year and less than or equal to three years.
Duration hedging strategies like TMV will continue to be beneficial as a final rate hike for 2018 looms in December. According to CME Group’s FedWatch Tool, there is a 72.1% chance that the Fed will raise interest rates by another 25 basis points to cap off a fourth and final rate hike for 2018.
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