Tuesday, April 20, 2010

The Big Dustup Index Fund (BDUIF)

Well, I have been waiting to report on the BDUIF status until the performance looked a little better, but it is still staying kinda bad, so here goes anyway.

As described in previous posts, the BDUIF is an investment strategy designed to follow the price of oil and gold against the stock market.  By investing in oil and gold futures, while shorting the stock market, the BDUIF hedges commodity losses that are due to economic decline, thus enabling an investment in oil and gold that is less exposed to general economic variation.

I have fine-tuned the BDUIF quite a bit since its creation.  For example, because gold was not performing well against the market and was not tracking Mideast tensions, I have gradually reduced the BDUIF holdings in gold-related issues.  The current make up is shown below, with ticker symbols of the various ETFs/ETNs, some of which track 2x or 3x their base index:

The BDUIF is designed to remain constant when stocks, oil, and gold move in sync.  It makes money when oil and gold go up compared to stocks.  It loses money when oil and gold go down compared to stocks.

In particular, it is meant to provide profit based on Mideast tensions or oil supply disruptions or economic upheavals, while reducing risk compared to a naked investment in oil and gold.  By reducing risk however, it gives up any oil and gold gains that track stocks.

The BDUIF is performing as designed, and is currently worth about the same as when I started it on 4 Feb 2010.  It has peaked twice, both during times of increased Mideast tensions.

Click image to enlarge

Of course during this period when the BDUIF experienced no gain, a naked investment in oil would have returned 10% (and last week, it was  almost 19%).  Gold would have returned 5%, and an investment in a DJIA index fund would have returned 11%.

Click image to enlarge

I have always said that the BDUIF is an investment strategy waiting for an event -- and no event has occurred yet.  Mr. 0's policy toward Iran may push any such event further into the future, but it will probably become a  much larger event than I originally anticipated.

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