Do Short Trackers Work As Hedges?

Short Trackers

You may also like...

4 Responses

  1. Avatar catflap says:

    Thanks mike. Much clearer than what is on the db-trackers website.

    According to the fact sheet, the XUKS ETF tracks the “FTSE100 Total return” index, which has not fallen as much as the FTSE100, so the tracking error is less when compared against what it tracks.

  2. Mike Rawson Mike Rawson says:

    Thanks for pointing that out and sorry I missed it.

    That’s actually better in two ways:

    – as you say the tracking error is less,

    – and also that’s a slightly better index to track for real-world hedging.

  3. Hi Mike,

    Really interesting stuff. I guess my first question is why would you want to hedge against your portfolio in this way? Surely the two things just cancel each other out (plus a small dip for charges and tracking error). I just literally don’t see any point in it. Surely you are better just selling equities and keeping cash/bonds instead?


  4. Mike Rawson Mike Rawson says:

    Three reasons:

    1 – it’s cheaper to make one trade in XUKS than 50 sales of the stocks in your portfolio

    2 – when the market bottoms out, you can take the hedge off cheaper – and more importantly , more quickly – than re-buying your 50 stock portfolio

    3 – stock-pickers would say that their stocks are better than the market and will fall less on the way down, so by hedging the index you make money

    It’s almost never a good idea to sell your whole portfolio.

Leave a Reply

Your email address will not be published. Required fields are marked *

Do Short Trackers Work As Hedges?

by Mike Rawson time to read: 4 min
More in What works
Active vs Passive
Active vs Passive – Indexing

Today we're going to look at the Active vs Passive investing debate, and the wider implications of index funds. We'll...