PaxtorReborn (92.96)

Potential ETF Hedged Play

October 01, 2009 – Comments (1) | RELATED TICKERS: XTR , XRT

My main interest in investing these days is a completely hedged play (or as close as complete that I can get) that will get me decent earnings whether the market stays stagnant, climbs or declines.

One idea I am toying with involves either a large basket of longs and shorts (as I currently do) or this:

A short on retail etf XRT and a long on the TSE income fund etf XTR  (hillariously with almost identical tickers).  Incidentally, does anyone know a 1X unleveraged retail sector short ETF?

Anyhow, the TSX income fund pays a hefty 8-12% dividend and the retail ETF pays nothing.  So, presumably, if the markets fall the dividend will provide the edge.  If they rise, again, the dividend will offset the short losses.  Finally, if the markets stay relatively flat, you guessed it, the dividend will make it worth your wait.

The problems I forsee are:

- The retail ETF has outpaced the income fund in capital gains since the low

- To short an ETF my broker is going to charge interest (which will cut into my gains)

Anyone have any thoughts?