Tactical Portfolio Advisory’s “Stock Hedge Trading Program” is designed to profit from the downside market moves that impact the value of a stock portfolio. The program tactically introduces 3x leveraged inverted stock index ETF’s into the portfolio with the mission to profit from downside market moves while also reducing portfolio risk through negative correlations of returns it adds to the portfolio. For example, the program trades based on a $100k equities portfolio and will execute a 15% hedge on the portfolio when tactical parameters are met. The ETF positions are typically short term but may be held intraday, up to six weeks.
An investor for the above $100k portfolio would allocate $5k to hedge 15% of the portfolio while allowing the opportunity to profit from down market moves.
Alternatively, an investor could decide against the above hedge and allocate $5k towards a new stock position.
The graphs below illustrate how each $5k investment would correlate to the $100k portfolio and the implications on portfolio risk. Securities that are negatively correlated to a portfolio reduce portfolio risk by decreasing the volatility or variance of returns in the portfolio.
Exchange Traded Funds (ETF’s) are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
A leveraged exchange-traded fund (ETF) uses financial derivatives and debt to amplify the returns of an underlying index. Leveraged ETF’s are available for most indexes, such as the Nasdaq-100 and the Dow Jones Industrial Average. These funds aim to keep a constant amount of leverage during the investment time frame, such as a 2:1 or 3:1 ratio. A leveraged fund with a 2:1 ratio means that each dollar of investor capital used is matched with an additional dollar of invested debt. If one day the underlying index returns 1%, the fund will theoretically return 2%. The 2:1 ratio works in the opposite direction as well. If the index drops 1%, your loss would then be 2%. The 2% return is theoretical, as management fees and transaction costs reduce the full effects of leverage.