Long-short market neutral ETFs

[Kust]

Why all the long-shot market neutral ETFs perform so poorly? Having a long-short portfolio that neutralizes market risk seems to be a good idea. So why all the long shot market neutral ETFs perform so poorly?

Generating enough trading ideas is a full time job. I would rather invest in some good long-short ETF, but I have not found anything good yet. And it seems strange.

 

[formikatrading]

At least some of the long-short funds use value-based criteria to determine potential stocks to buy or short. The reality is that some of the most "overvalued" stocks tend to keep going up while some of the most "undervalued" stocks tend to keep going down. Further, most long-only professional money managers can't outperform their benchmarks so now you have a portfolio manager trying to short as well. It usually doesn't go well.

 

[El Trado]

Long stock is 100
Short stock is 100

The market drop 10 %

Long stock is 90
Short stock is 110

The market increase by 10 %

Long stock is 99
Short stock is 99

Voila, you have lost 2 just while the market being back to where it started.

Then multiply this by a lot of volatility up and down and you have your answer......

 

[murray t turtle]

At least some of the long-short funds use value-based criteria to determine potential stocks to buy or short. The reality is that some of the most "overvalued" stocks tend to keep going up while some of the most "undervalued" stocks tend to keep going down. Further, most long-only professional money managers can't outperform their benchmarks so now you have a portfolio manager trying to short as well. It usually doesn't go well.

%%
Exactly.............................................................................
And the inverse etfs tend to do really badly;
unless /until you have a day like today.I got out of spxs with a better profit+ worse slippage than i though today .
Slippage tends to be much worse in inverse ETFs\ but profit targets can party fix that.
CLIX= long online short bricks + mortar had a huge run last year, but more erratic than a 3 times long ETF, but less eratic than inverse ETFs.

 

[jbusse]

Long stock is 100
Short stock is 100

The market drop 10 %

Long stock is 90
Short stock is 110

The market increase by 10 %

Long stock is 99
Short stock is 99

Voila, you have lost 2 just while the market being back to where it started.

Then multiply this by a lot of volatility up and down and you have your answer......

No reason for a "market neutral" fund to remain 22% net short after the market dropped. If you re-balance to market neutral after the market drop, you'd be break even after the market increase.

 

[KCalhoun]

%%
Exactly.............................................................................
And the inverse etfs tend to do really badly;
unless /until you have a day like today.I got out of spxs with a better profit+ worse slippage than i though today .
Slippage tends to be much worse in inverse ETFs\ but profit targets can party fix that.
CLIX= long online short bricks + mortar had a huge run last year, but more erratic than a 3 times long ETF, but less eratic than inverse ETFs.

Inverses are like nightclub ladies..... beautiful on days like today but risky. UVXY my favorite

 

[Kust]

Inverses are like nightclub ladies

Please do not flood and discuss inverse ETFs here. My question is about long-short presumably market neutral ETFs.

 

[DaveV]

Long stock is 100
Short stock is 100

The market drop 10 %

Long stock is 90
Short stock is 110

The market increase by 10 %

Long stock is 99
Short stock is 99

Voila, you have lost 2 just while the market being back to where it started.

Actually the market is not back where it started. It is down 1%
But I get your point, and it is well made.
BTW, the same math explains why 2x and 3x ETFs constantly trail their respective index.

 

[ph1l]

Why all the long-shot market neutral ETFs perform so poorly? Having a long-short portfolio that neutralizes market risk seems to be a good idea. So why all the long shot market neutral ETFs perform so poorly?

Generating enough trading ideas is a full time job. I would rather invest in some good long-short ETF, but I have not found anything good yet. And it seems strange.

High expense ratios could be part of the answer.
https://etfdb.com/screener/#page=1&...es=Long/Short&ytd_ff_start=NaN&ytd_ff_end=NaN

 

[jbusse]

Why all the long-shot market neutral ETFs perform so poorly? Having a long-short portfolio that neutralizes market risk seems to be a good idea. So why all the long shot market neutral ETFs perform so poorly?

Generating enough trading ideas is a full time job. I would rather invest in some good long-short ETF, but I have not found anything good yet. And it seems strange.

The main reason is shorting has become incredibly difficult since the end of the financial crisis, probably because of the Fed's influence on the market.