Spread ETFs Go Gold

Terry Flanagan

Factor Advisors, a New York based asset management, launched a family of spread exchange traded funds in February of 2011, and have since, gone public on the NYSE Arca exchange last June.

The family of offerings include: FactorShares 2X: S&P500 Bull/TBond Bear, FactorShares 2X: TBond Bull/S&P500 Bear, FactorShares 2X: S&P500 Bull/USD Bear, FactorShares 2X: Oil Bull/S&P500 Bear, and lastly, FactorShares 2X: Gold Bull/S&P500 Bear.

On August 2, the FactorShares 2X: Gold Bull/S&P500 (ticker symbol FSG) Bear spiked up 12.48 percent, making it the third best performing ETF on the NYSE Arca, closing at 34.87; a record high for the ETF.

Such performance does not come as surprise given the growth of gold prices, in comparison to the descent of the U.S. equities market. The S&P 500 closed at 1,254.05, down on Tuesday, and gold closed at 161.52 the same day, a steady incline of weekly performance.

“The fund is responding to what has been in the market place—the difference in returns between gold and the S&P, which signals a flight to quality. That flight to quality has been lately, taking positions in gold,” said Rosenthal. “

Broadly speaking Rosenthal told Markets Media that the performance of FactorShares ETFs are not unlike other index based products. “From our vantage point, we simply are providing a passive way for investors to gain access in a convenient to spread between two asset classes. It’s very different from an actively managed mutual fund, or separate account—which tries to beat an index overtime.”

Such disparate conditions between equities and negative correlated assets, such as gold, are positive for spread strategies—which is, in essence, a long and short position rolled into one trade. With one trade, investors can track two market segments, with the idea of “cost efficiency” in mind, according to Stuart Rosenthal, chief executive of Factor Advisors.

FactorShares is seeing interest from a variety of clients—institutional, professional and sophisticated retail clients, according to Rosenthal. “It’s available to everyone via a brokerage account, but we’re really indifferent to the composition of our clientele.”

Among other FactorShares strategies that stand out to Rosenthal is the FactorShares 2X: TBond Bull/S&P500 Bear (ticker symbol FSA). “It’s a strategy that has over the prior five months, been negatively correlated with the broad US stock market,” noted Rosenthal. “It could be used as hedge, to help protect and manage a portfolio in the event the stock market continues to decline.”

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