Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

Hedging the SP500 fund With PIMCO StocksPLUS TR Short Strat D (PSSDX)

edited April 2011 in Fund Discussions
Does anyone employ a hedging strategy using PIMCO StocksPLUS TR Short Strat D (PSSDX) which shorts the S&P 500 and a S&P 500 fund, such as VFINX=Vanguard 500 index?

Linked is a comparison chart of the two funds using stockcharts. It would seem to me that taking profits periodically from one and redeploying in the other would provide a smoother long term outcome.

I have often wondered that if on a periodic (weekly / monthly / quarterly) basis if an investor rebalanced a 50/50 portfolio of VFINX = Vanguards S&P 500 fund and a fund like PSSDX if volatility would be reduced and long term gains realized.

You may have to select Histogram chart option (lower left) as a way of better comparing periodic gains/losses. The comparison chart is based on a 200 day moving average (200DMA).

I haven't figured out how I would reallocate but I will run some spread sheets to test out some ideas.

Any thoughts would be appreciated,,pssdx


  • This is an interesting strategy on the surface, but in practice there are better/easier/cheaper ways to get the same results. Your investment in VFINX creates a 100% long S&P position. Your investment in PSSDX creates a 100% offsetting short position, but it also adds a long position in a high quality, short-term bond portfolio managed by Bill Gross (the bonds are used to collateralize the short futures contracts). Thus, your net exposure is the short-term bond portfolio managed by Bill Gross, and your total results from a portfolio like this will very closely replicate PIMCO Low Duration PLDDX unless you're really good at timing your rebalances (difficult if not impossible to over time when analyzing rebalance periods on what is likely to be a short-term basis). This doesn't factor in the frictional trading and tax costs of moving in and out of funds, which could really place a burden on the results, particularly given that this is a low return strategy to begin with. I modeled your long/short fund mix, and put that up side by side with Low Duration. The results are incredibly similar.

    If you like the low duration of a long-short portfolio, Bill Gross runs a fundamental advantage market neutral product (long Arnott's value index futures, short S&P futures, long a bond portfolio for collateral). While not as hands on as what you've described, it could give you the potential for better returns with similar volatility.
  • I have some light hedging using various ultrashorts as a couple of %.

  • Thanks for the suggestion...just what I was looking for.
Sign In or Register to comment.