Friday 11 May 2012

Tracking Failure

So I sold out of my short AUD/GBP the other day having bounced back into the black. The trend looking pretty stretched (blowout from 1.48 to 1.60) and the chatter on the AUD looks pretty popular (always a bad sign).

However during the precise time of my ownership the AUD depreciated around 5% to the GBP yet the fund at 3x leverage returned just 3%! It should have been 15%! Obviously some noise from relative yields, intraday moves and reblanacing, the application of leverage, illiquidity etc. However clearly this is not an investment for any long term view. I blame myself for a lack of due diligence but I cant see how ETFS can justify these products given the tracking error which on bloomberg is about 12! Hardly a genuine exposure.

Still I got out with a return roughly approximate to shoving my cash in a UK bank account so can’t complain too much.

This does worry me for the future of my short copper ETF where as far as I can see it has underperformed its underlying exposure by about 8% over the past year. Again my return is being eaten away by poor products. I do gain a certain satisfaction from being intellectually vindicated but I gain more from making money.

Caveat Emptor...

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