Monday, June 7, 2010

BDUIF Update

Updated with previous day's data on 8 June 0530 UTC.

The Big Dustup Index Fund (BDUIF) is a strategy for investing in oil and gold that attempts to mitigate downside risk due to variations in the world economy.  By balancing exchange traded funds (ETFs) in bullish oil and bullish leveraged gold, along with bearish leveraged ETFs in US and foreign stock indexes, the BDUIF tries to produce a "crisis" investment that does not change during ordinary economic/political/military environments, but will go up greatly if an "event" occurs.  These events could include a general economic meltdown, a Mideast War, increased terrorism, or a variety of other interesting occurrences.

I have been managing a portion of my portfolio using the BDUIF philosophy since early February.  It has shown much less volatility than the overall stock and commodity markets, and has remained pretty much even.

The following chart shows the BDUIF performance over time.  Note that the intent of the fund is to follow the average of the ratios of oil and gold to the US Dow Jones Industrial Average.  Depending on the nature of a crisis, it is anticipated that the DJIA would go down, and gold and/or oil would go up.  The BDUIF is positioned to take advantage of this potential split between the DJIA and gold, and the DJIA and oil.

The following chart shows the performance of the BDUIF since inception on 4 February 2010.

 Click to Enlarge

As you can see, lately I have had some difficulty making the BDUIF track the average line (light blue).  On two occasions in late May, the BDUIF was excessively heavy on DPK, which is a 3x short fund based on non-US stocks (actually the MSCI EAFE index).  Oddly, foreign markets have been doing better lately than the US, which means that the BDUIF is lagging when measured against US markets.

As seen below, the BDUIF is actually following quite well the average of the ratios of oil and gold to the European DAX market.

  Click to Enlarge

An additional issue in late May was that I had lightened up on oil to invest more in the short equity position in general, so did not keep up with oil when it increased with respect to the stock market at the end of May. I have returned to a more balanced approach, but am still a little heavy on the short positions, since I believe the world markets are in correction-mode.

If I am correct in this assessment, I should be able to catch up with the DJIA-based light blue line.  I will however stay more closely tied to the original balanced BDUIF philosophy and not try to "beat" it by second-guessing trends.

Here is the current ticker-symbol makeup of the BDUIF, as straight holdings and with leverage accounted for:

 Without Leverage

 With Leverage

No comments:

Post a Comment