Alpha generation during COVID 19, inverse ETPs

News Team, 30/03/2020

While there seems to have been a partial slowdown in the global markets’ freefall this month, aided by huge monetary policy decisions by the major central banks, some sophisticated investors may have made hay during the mayhem.

Exchange-traded fund (ETF) provider GraniteShares has revealed that while the markets were falling between 19 February and 11 March, some of its products produced three digit returns.

At the top of this list was its single stock 3-times Glencore Short ETP which delivered a return of 194.9 percent during the time period. This triple leveraged product allowed investors to back that commodities giant Glencore’s share price would fall as demand dried up and it appears that it was a prudent play.

According to the company, of its inverse products, six from 11 produced returns of over 100 percent during the time frame. However, the firm also has leveraged long ETPs, with the worse performing product being the 3-times Long BP ETP which was down by 86.5 percent.

Will Rhind, Founder and CEO at GraniteShares said in a statement: “It’s important to note that in situations of huge market volatility as we see today, investors can hedge against falls, and boost returns from any recovery.

“For the first time, our new leveraged and inverse ETPs enable sophisticated investors to take positions on both rising and falling share prices. They can also be used to hedge individual stock exposures, including those in index or fund holdings.”

It should also be noted that with any leveraged product there is a greater level of risk which is why the European Securities and Markets Association (ESMA) put in rules a couple of years ago restricting their use in a bid to protect retail investors. ESMA’s move was targeted at highly leveraged currency swaps and other types of binary options that had been widely available on retail trading platforms such as CMC and IG.

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