Not Your Grandpa's ETFs

November 10, 2008

If one thing has become clear in the last couple months, it's that traders love more volatility, and Direxion's got it.


Just when you thought the ETF industry had put its brakes on, here comes THREE TIMES. Wow. In my past 10 days of travel, I was asked numerous times what I thought of these new funds, and that question being asked is a gauge on the interest in the products, I'd say. It was clear that there was some buzz.

Clearly Matt and I just don't "get it" because I'm not out there trading them, but believe you me, there are a whole lot of people who are. And when the market's trading up 5% in a day, hey, make that 15% and you've got a party! At the unprecedented trading levels in markets and unprecedented trading volumes in ETFs, along with markets have been whipsawing back and forth, it's clear that there are a large segment of traders who LOVE volatility.

And they're trading ETFs like it's 1999. So push up the vol. Why stop at 3X? Why not 5X, 10X? There must be some kind of trigger mechanism that can reset the fund intraday on the up or downside busts to zero, right?

It is kind of funny to see these thrown into the mix just when there's caution in the air - or seems to be - in the ETF industry, with launches slowing to a crawl and 41 funds having closed this year. It just goes to show that there is still a lot of space out there for a lot of things that you and I are likely not thinking of.

Has anyone besides me noticed how cautious Jack Bogle has been recently? He's been telling investors effectively to be very circumspect at piling into the market right now (while still ostensibly giving out the dollar-cost-averaging line). I still think—despite all the gloom and doom—that 10 or 20 years down the line, anytime around now is going to look like a great time to have gotten back into equities.



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