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Thomas Hepner PROSHARES SHORT 20+ YEAR TREASURY (TBF)

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Presentation on theme: "Thomas Hepner PROSHARES SHORT 20+ YEAR TREASURY (TBF)"— Presentation transcript:

1 Thomas Hepner PROSHARES SHORT 20+ YEAR TREASURY (TBF)

2 Portfolio Performance and Interest Rates Our portfolio is very correlated with overall performance of stock market Interest rates have been increasing Generally, stock market appreciates when interest rates decline, and depreciates when interest rates rise This is due to spread between returns of stocks and treasury bonds (risk-free rate)

3 Effects of Rising Interest Rates on Portfolio HTA hemorrhaging value – down over 10% HTA exposed to health care, real estate, and interest rate risk HTA has huge upswing from Obamacare, but is being crushed by rising rates I expect HTA to fluctuate in value like it has during the year from Fed announcements with a long term trend downwards until Obamacare is fully implemented

4 Hedging Against Interest Rate Risk Hedge by betting that interest rates will rise How do we do this? Buy an asset that gains in value as interest rates rise and bond prices fall - Interest Rate Option (can’t purchase this) - Inverse Treasury ETFs

5 Principles of Inverse Treasury ETFs “The longer the duration of the bond ETF, the more the ETF will rise or fall in value when interest rates change.” “Changes in Treasury bond prices often do not lead to a proportional move in corporate bond prices.” “Leveraged ETFs sometimes do a terrible job tracking moves of the underlying investment.” Reference: treasury-market-read-this-first/

6 Inverse Treasury ETFs to Choose From ProShares Short 20+ Year Treasury (TBF) ProShares UltraShort 20+ Year Treasury ETF (TBT) Direxion Daily 20+ Year Treasury Bear 3x ETF (TMV) Direxion Daily 20+ Treasury Bear 1 X Shares (TYBS) ProShares Short 7-10 Year Treasury (TBX) ProShares Short High Yield (SJB) 5-inverse-bond-etfs-tbf-tbx-tmv-sjb-jgbs0204.aspx 5-inverse-bond-etfs-tbf-tbx-tmv-sjb-jgbs0204.aspx

7 What criteria to choose from? Expense Ratio ETF with high duration to capture value Do not want ultra short ETF because of decay over time Moves roughly opposite of HTA ProShares Short 20+ Year Treasury (TBF) Direxion Daily 20+ Treasury Bear 1 X Shares (TYBS)

8 Performance Comparison – Last 2 Years Very highly correlated with each other

9 Comparison with HTA – 1 Year Inversely correlated with HTA

10 Other Metrics ProShares Short 20+ Year Treasury (TBF) Direxion Daily 20+ Treasury Bear 1 X Shares (TYBS) Average Volume: TBF (995,000), TYBS (4,185) YTD Returns: TBF (9%), TYBS (10.9%) I recommend TBF for liquidity considerations.

11 Why buy now? Interest rates at historical low Yellen will replace Bernanke as Fed Chairman Fed tapering - on and off (eventually they will do it) Tapering will result in rises in interest rates

12 Summary HTA hemorrhaging value because of interest rates HTA still provides 5% yield and potential for long-term appreciation, especially from Obamacare implementation Buying Inverse Treasury ETF, TBF, provides strong profit potential should interest rates rise


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