Tuesday provided a good measure of how the BDUIF functions in a down market. Here are the statistics for the day:
The DJIA was down 1.9%.
Fund oil holdings in OIL, USO, and DBO were down 2.4%
Fund gold holdings in UGL were up 3.2%
Fund short stock holdings in BGZ and DPK were up 8.8%
Overall the BDUIF was up 1.36%.
The Fund is based on a balance between long oil, long gold, and short equity ETFs, and is designed to hold steady in volatile markets while gaining if oil and/or gold diverge upwards from the general stock market as could occur during various types of economic and military crises.
Indeed previous losses in the Fund as oil increased hinted at having too much shorted -- although further analysis indicated that the issue was likely due to the under-performance of gold with respect to the general stock market.
At the end of March, we reduced the Fund's gold position by about half. Early Tuesday afternoon we increased the gold holding by a little over 40% due to the bullish movement in gold described below.
The surprise increase in the Fund on Tuesday was mostly caused by a large gain of 11.9% in DPK (which is a triple short on developed markets, heavily weighted toward Europe) and a very unexpected gain in gold. Both of these have been attributed to the sovereign debt crisis in Greece.
At this time, it does not appear that we are holding too large of a short position. Indeed, the Tuesday gain was mostly due to economic turmoil of the sort that the BDUIF is designed to react to, thus indicating that it is performing on target.
The gold increase is particularly interesting. The dollar was strong today (mostly against the Euro), which would normally force gold lower. So in real terms, gold truly soared. The parting of ways between gold and the stock market is an important bullish signal for gold -- at least in the short term.
In general, we are pleased with the performance of the Fund so far. It has stayed within +4 and -2 percent of the stable goal with the upper extremes seen predominantly in times of world economic or military tension. It is thus maintaining its mission of providing a way to invest in crisis gold and oil separated from normal economic volatility. We are still confident that in a Mideast crisis, or a sovereign debt crisis, or in times of inflation (particularly stagflation), the BDUIF will do well. It will do exceptionally well in any situation where gold and oil go up and equities go down.
Here are the latest BDUIF charts:
Performance compared to Gold/DJIA and Oil/DJIA ratios
Current Composition of the BDUIF
Composition of the BDUIF with leverage of 2x and 3x ETFs shown explicitly