AUM: £100 million
ALL ETFs? Yes
When did you start using the ETF?
We first used it in July 2011, one month after we launched our Spectrum range of funds.
Why did you choose this ETF?
Stock markets had moved into a negative trend at the time, and our momentum-based investment process told us we should start shorting UK equities in our funds. This ETF effectively gives you that short position, i.e., it allows you to profit from a declining market. The effect of holding it has been similar to that we experienced in 2011; i.e., allow our funds to track sideways or gain slightly while markets have fallen and have wide daily swings.
What are the attractions of this ETF?
The fund has a very strong, though not perfect, inverse correlation to the FTSE 100. If you're looking to benefit from a downturn in the UK market, or to hedge your long exposure, this fund is going to do that for you.
It has the advantage of being a UCITS ETF, so we have protection in terms of collateral for the swap used to achieve its objectives. It is also over-collateralised, which provides an extra layer of confidence for the consumer.
In terms of exposure, some ETPs are structured as securities and notes, so what we can hold is limited to 10% of the fund by the Financial Conduct Authority. With an ETF, we can go up to 35% in any one of our funds.
How do you use it?
We use it in exact ly the same way that we would a long-only ETF. Our investment process invests in the indices that have the strongest risk-adjusted positive trend. In simple terms, if the ETF's price is going up the most, i.e., if it 's gaining momentum, compared to other mark ets, it will qualify for investment. Our process is not concerned with concepts, such as being long or short, merely price direction.
What position do you hold in it?
The amount we have depends on the risk profile of the fund concerned. Our highest risk fund has 20% invested in the ETF, and our lowest risk fund has 6%.
Do you find this ETF is weighted heavily in one area?
Well, naturally it has a capitalisation bias, as the ETF is weighted by market cap, but that's not a problem for us, as we're only concerned with the direction the index takes.
What alternative ETFs are there to the one you chose?
The Boost FTSE 100 1x Short Daily ETP (SUK1) is similar in its objective, but this fund is structured differently as an ETP, and would therefore limit the amount we could hold in the funds. It's also a very small fund in comparison to XUKS.