Canadian RSP bear funds

[lescor]

Are there any RRSP eligible bear funds? Preferably something that is basically an index fund that's 100% anti-correlated to some equity index, like the Ryddex funds. I've found short/long funds, but they are mostly hedging for lower volatility returns, and you still need to rely on the management.

How else can I take a bearish position in my RSP besides precious metals?

 

[Babak]

I don't know if they are still operating, but there used to be a fund family specializing in x2 exposure (both long and short) in indices (they had HongKong, US, etc.) Although from what I remember they also had a rather high min, something like $150,000 Cdn.

You might also want to try XGV XGX (bond funds) on the TSE.

 

[North Pesos]

You can use your 30% non Canadian portion for to buy the RYDEX bearish fund. If you have inside it some U$ products, you can drop them and buy them with option which are not limited by the 30% restriction unless you convert it. This is the workaround that fund manager use for to replicate U$ indices that are admit at 100% as RRSP product.

The other way, maybe more simple for you if you don't know how to handle options, is to take the bearish position outside of your RRSP (in your standard portfolio). If your RRSP drop, you make your money inside you portfolio and viceversa!

Maybe the good news, is that the canadian gov't. discuss with Montreal Exchange for to allow PUT option inside our RRSP, this could help us in this kind of case.

 

[dojibear]

I never understood the reasons why one can purchase calls or sell covered calls in RRSP, and not purchasing/selling puts. Buying put is a great insurance policy to protect your long positions against a drop in price, and selling puts is a great way to wait for your stock to come down to your entry price.

When I took the option/derivatives courses at the Montreal Stock Exchange, the 'professor' mentionned that he had a few fund managers comming to the courses to learn about options.
Those guys managed millions $ funds, and didn't even know options ! I guest during a bull market, anyone could be a good fund managers.


Cheers !!

 

[chuckm_ca]

I was under the impression that no shorts or puts are allowed in an RRSP. Would this not include funds that invest in puts or use short sales.

 

[Babak]

They bypass using derivatives (legally the holdings are T-Bills and other fixed income acting as margin). Other 'limits' like the foreign content are similarily bypassed. Neat, huh?

 

[North Pesos]

Quote from dojibear:

I never understood the reasons why one can purchase calls or sell covered calls in RRSP, and not purchasing/selling puts. ...

Very simple because this is an historic artefact and few people know the reason: RRSP have been created in late 1950 years, and the Canadian options have been created 10 years later, the Canadian gov't. have copied the american law about IRA for to transposed them in the RRSP laws about 1974 but the PUT have been introduced on the american market only two years later after the laws was written and since this time no modification have been do about RRSP for to address this problem. The only good news is that since the last year, the Can. gov't. have begun to study this question with the Montreal Exchange and it seem that the gov't. is open to modify the present regulation for to support cover PUT option. How long before that? I don't know, the problem with the gov't. is when they study something, and if this is not trivial as option (because they have problem to understand this concept), the time before ending and accept that could be long! Hope that this will not the case.

 

[North Pesos]

Quote from chuckm_ca:

I was under the impression that no shorts or puts are allowed in an RRSP. Would this not include funds that invest in puts or use short sales.

For the RRSP owner, the principle is that you cannot take product that could expose the RRSP to go down lower than authorized amount inside the plan. This is why short sales are not allowed inside IRA or RRSP, because with a short you have a risk to have a broker's call for to add fund because your are in the red, but RRSP you can only add a limited amount each year, a contradiction which required a legal limitation.

Now for bearish fund as RYDEX, as Babak mentioned, they used derivative as a workaround but for the owner this is a simple share stock for which you cannot go lower than 0 as any stock, this is why you can buy it. The key is that this product is a simple share for the stock market and no restriction about share have been written about that. BTW, this is a proof that the RRSP law is too old now and not well representative of the market in these days. In this case, you own a share which use CALL and PUT for to produce a bearish fund, but your are allowed to own it. Why?

The question is more why not! If you restrict every shares with underlying PUT, derivative as Futures, SWAP, few shares of the SP500 or TSE60 will be qualify for the RRSP plan. A good example, IBM use heavily many derivative as insurance against Euro/U$, because these differential flow of money could be very expensive for the business. These products are not allowed in your RRSP plan but your are allowed to own IBM shares in your RRSP!