A basket of ten short ETF’s (Exchange Traded Fund) held by ArabianMoney.net gained more than 4.5 per cent in May as the Dow Jones had its worst moment since 1940, and the S&P fell to the lows of 1962.
“An ETF portfolio spread over ten or so short stocks continues to be our choice as we ride these volatile times,” said ArabianMoney.net’s editor, Peter Cooper.
“Aside from short ETF’s, the only other two summer strategies we suggest are that investors hold tight to cash and to a lesser extent gold.”
Cooper reckons that some 90 per cent of global hedge fund managers lost money in May, and noted that the first few days of this month (June 2010) are proving equally volatile, with dramatic sell-offs leaving the Dow and S&P down by more than 3 per cent each.
“Almost every trading strategy was a loser in one of the worst May’s in recorded history, confirming that volatility is a killer that even the best cannot really handle,” said Cooper.
“However, ArabianMoney.net subscribers who went out and bought the recommended short exchange traded fund portfolio enjoyed an average gain of almost 5 per cent.”
Cooper navigated the risk involved in third party participation to explain the presence of ten ETFs in the short portfolio. “We selected a basket to spread any risk. And because the cost of buying ETFs is so reasonable the creation of a fund of short ETFs is not an expensive proposition, even for the small investor.
“Indeed, bigger investors will find that liquidity becomes an issue in buying these instruments but then any investment has physical limits.
“Don’t put everything into short ETFs but do take this opportunity and hold on to them until the market appears to have reached a bottom,” he said.
Cooper is also voting for keeping hold of cash in hand. “Arabian investors like the US dollar and for once its fixed peg to our local currencies is seen as a bonus as the dollar rises against other major currencies.”
He went on to suggest that Arabian currencies are probably a better place to hold cash than the dollar. This is because they pay higher interest rates and there could be some protection in the event of major financial problems in the US as the peg could be quickly severed. Copper also reminded of an often overlooked fact that local UAE Dirham deposits carry a government guarantee.
“Nobody ever got rich by investing in cash deposits or short-dated US treasuries but then it is a fair to say that not losing money might be more important than trying to make it over the next few months,” he mooted.
Turning to the season’s favourite investor topic, gold, Cooper stated that he would not sell any gold holdings right now but equally adding to them in the current environment might not be wise.
“The third quarter of the year is traditionally a weak spot for gold prices, and if the stock market correction of May turns into a more serious downturn or even another crash then some investors may have to sell their gold to pay margin calls.
“In any case having cash on hand to buy gold at cheaper prices in the late summer might be a better course of action,” he counseled.
“ArabianMoney believes much lower stock market levels are coming soon to a screen near you, so any trading activity carries serious risk – that is why there is money in it until there is not.”
Cooper confirmed that he still believes that the trade of the decade will be found on the UAE stock markets. “Stocks are still falling so we are still waiting to buy. Sadly shorting is not possible.”
He suggested that the recent holding statement about the $23.5 billion Dubai World debt rescheduling probably puts back any ‘buy’ order on UAE stocks to the very late summer or mid-September.
“Stand by for a wider stock market crash and dollar rally that will pull all industrial commodities down a lot further. That might mean below the $32 a barrel mark of December 2008, a double bottom to this oil market.
“UAE stocks will not react wisely.They will panic and sell-off to absurdly low prices,” he suggests in the third edition of the subscriber-only newsletter, ArabianMoney.
He noted that anyone can sign up for a free first edition of the newsletter by visiting the financial comment website www.arabianmoney.net.
“Over the past decade in Arabia I have made some very successful investments in private equity, property and stocks.
“I intend to continue doing so and through ArabianMoney.net I will share my insights, as well as presenting the thoughts of others far more gifted in investment analysis than I am.”
Cooper, a partner in AME Info, the Internet company that sold for US$27 million in July 2006, is back with ArabianMoney.net, launched in tandem with the ground-breaking monthly subscription newsletter focused on investment opportunities in the region.
Twenty years ago, Cooper was runner-up out of 2,000 entries for the British Periodicals Association's Newsletter of the Year Award, the newsletter Oscars.
He first came to the Gulf in 1996 as the founding editor of the first local business magazine, Gulf Business and launched the AME Info news service in 2000.
Since selling AME Info he has written the international best-seller 'Opportunity Dubai: Making a Fortune in the Middle East', on sale in Magrudy's. His latest book, 'Dubai Sabbatical: The Road the $5,000 Gold' was published exclusively on Amazon.com last month.
