TMV hedging and timing

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TMV hedging and timing2017-03-03T15:27:18+00:00
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  • Frank Grossmann
    Post count: 174

    TMV should stay in place for quite some long time. The big tapering drawdowns of 2013 are past history. You don’t need to look daily at the TMV short hedge. Just keep it. TMV is a loser and if you stay short it will be a long term winner. It should return about 10-15% per year.

    Here is a long term chart of TMV. As you see, it lost 80% of it’s value in the last 4 years.


    Here is a 12 month comparison with EDV and TMF. While all treasuries had quite big losses of about -7% in 2013, a short TMV position was flat over the year.

    EDV -7.2%
    TMF -18.2% (divide by 2 because TMF=+2xEDV) -9.1%
    TMV 0.6% (divide by -2 because TMV=-2xEDV) = -0.3%



    Since 2009 the average return of TMV short is nearly 20%.

    With normal ETFs you only profit from Treasury yield (dividends). From this you have to substract mangagement fee and time decay of leveraged ETFs like TMF.
    With TMV you profit from Treasury yield (dividends) and because you are short TMV you profit also from mangagement fee and time decay.

    Best regards
    Frank Grossmann

  • Frank Grossmann
    Post count: 174

    In several of your blog posts, you advise shorting TMV as a hedge and
    leaving it in the account. This means we would never realize any gain from
    it, although we need to pay the cost of borrowing the money monthly. Do you
    ever sell any of the hedge if the price goes down, to cover the cost of
    borrowing, and then buy it again when it goes lower?

    • Frank Grossmann
      Post count: 174

      Contrary to a long position a short position will lose value over time. So, if you open a TMV short position of 10’000$ and Treasuries go up, then TMV will lose value. After some time your short position will for example only have a value of 9’000$. Now because you want to keep a 10’000$ hedge, you will have to sell more TMV for 1000$.
      In fact you are doing exactly the same as someone who has the +3x leveraged TMF to hedge. His TMF position would have gone up from 10’000$ to 11’000$. To keep it at 10’000$ also he would have to sell ETFs for 10’000$.
      So the effect of rebalancing is exactly the same for long and short ETFs.

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