HEDGEFUNDIE Strategy for European Investors

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tradri
Posts: 606
Joined: Tue Mar 23, 2021 5:42 pm

Re: HEDGEFUNDIE Strategy for European Investors

Post by tradri »

Laurizas wrote: Mon Apr 19, 2021 8:19 am
tradri wrote: Mon Apr 19, 2021 6:38 am I don't understand why you guys are so worried about those WisdomTree ETPs.
I am no expert, but on page 8 here it says that ETN's are usually entirely reliant on the creditworthiness of the issuing entity.
https://www.wisdomtree.eu/en-gb/-/media ... tpedia.pdf

It does not say this apply to ETCs.
I can't open your link, but in the Factsheet of these WisdomTree ETPs it says that legally they are treated as fully collateralized ETCs.
Henri111
Posts: 20
Joined: Thu Apr 22, 2021 6:45 am

Re: HEDGEFUNDIE Strategy for European Investors

Post by Henri111 »

I got in touch with Wisdomtree a while ago as I was poundering the same questions.
Here is a summary of what I've been told:

Investors in the ETPs are exposed, directly or indirectly, to the risk of default by the Issuer “WisdomTree Multi Asset Issuer plc”, by a swap provider, or by the Collateral Administrator.

Default by the Issuer “WisdomTree Multi Asset Issuer plc”:
- Given restrictions on its business activities, there is limited scope for WTMA to incur liabilities outside the issue and redemption of ETP Securities and the swaps entered into with the swap providers.
- The issue and redemption of ETP Securities and the operation of the underlying swaps follow well documented and narrowly defined processes. There is little flexibility around such processes.
- ‘Limited Recourse’ and ‘non-petition’ provisions are designed to avoid cross-contamination of any defaults that may affect particular classes of ETP Securities.
- WTMA has no real assets other than the assets in the Collateral Pools posted by the swap providers. It has no access to such collateral assets unless there is a default by the relevant swap provider. Such assets are secured in favour of the Trustee for the benefit of investors and other limited secured creditors.

Default by a swap provider :
- Exposures to swap providers are (over)collateralised on a daily basis.
- The timing of the exchanges of cash and collateral assets is designed to ensure WTMA does not face collateral shortfalls against the swap provider(s).
- Collateral value and haircuts are independently assessed by Collateral Administrator.
- If a swap provider defaults, the Securities Programme provides for the possibility of WTMA finding a suitable swap provider replacement before the security over the collateral is enforced.
- The Collateral Pool remains in a segregated account with the Collateral Administrator.
- The Initial Swap Provider is a leading investment bank, and any further swap providers would be of a similar level of credibility.

For most of the Wisdomtree products mentioned the swap provider is BNP Paribas Arbitrage SNC and the custodian/collateral manager is Bank of New York Mellon.

Moodys mentioned BNP Paribas to have an Aa3 counterparty risk.
https://www.moodys.com/research/Moodys- ... -PR_436648
... and Bank of New York Mellon (oldest bank of the US) to have an Aa2 rating
https://www.moodys.com/research/Moodys- ... -PR_435694

Honestly, I don't understand 100% of all the above myself but it has a positive outlook. I'm looking forward to hear the opinion of the more experienced Bogleheads though.

I personally check ratings once in a while and have a Google Alert to stay up to date about the latest news in regard to these banks. In this way for example I removed ETN's from Deutsche Bank a couple of years ago.
tradri
Posts: 606
Joined: Tue Mar 23, 2021 5:42 pm

Re: HEDGEFUNDIE Strategy for European Investors

Post by tradri »

Henri111 wrote: Thu Apr 22, 2021 10:32 am I got in touch with Wisdomtree a while ago as I was poundering the same questions.
Here is a summary of what I've been told:

Investors in the ETPs are exposed, directly or indirectly, to the risk of default by the Issuer “WisdomTree Multi Asset Issuer plc”, by a swap provider, or by the Collateral Administrator.

Default by the Issuer “WisdomTree Multi Asset Issuer plc”:
- Given restrictions on its business activities, there is limited scope for WTMA to incur liabilities outside the issue and redemption of ETP Securities and the swaps entered into with the swap providers.
- The issue and redemption of ETP Securities and the operation of the underlying swaps follow well documented and narrowly defined processes. There is little flexibility around such processes.
- ‘Limited Recourse’ and ‘non-petition’ provisions are designed to avoid cross-contamination of any defaults that may affect particular classes of ETP Securities.
- WTMA has no real assets other than the assets in the Collateral Pools posted by the swap providers. It has no access to such collateral assets unless there is a default by the relevant swap provider. Such assets are secured in favour of the Trustee for the benefit of investors and other limited secured creditors.

Default by a swap provider :
- Exposures to swap providers are (over)collateralised on a daily basis.
- The timing of the exchanges of cash and collateral assets is designed to ensure WTMA does not face collateral shortfalls against the swap provider(s).
- Collateral value and haircuts are independently assessed by Collateral Administrator.
- If a swap provider defaults, the Securities Programme provides for the possibility of WTMA finding a suitable swap provider replacement before the security over the collateral is enforced.
- The Collateral Pool remains in a segregated account with the Collateral Administrator.
- The Initial Swap Provider is a leading investment bank, and any further swap providers would be of a similar level of credibility.

For most of the Wisdomtree products mentioned the swap provider is BNP Paribas Arbitrage SNC and the custodian/collateral manager is Bank of New York Mellon.

Moodys mentioned BNP Paribas to have an Aa3 counterparty risk.
https://www.moodys.com/research/Moodys- ... -PR_436648
... and Bank of New York Mellon (oldest bank of the US) to have an Aa2 rating
https://www.moodys.com/research/Moodys- ... -PR_435694

Honestly, I don't understand 100% of all the above myself but it has a positive outlook. I'm looking forward to hear the opinion of the more experienced Bogleheads though.

I personally check ratings once in a while and have a Google Alert to stay up to date about the latest news in regard to these banks. In this way for example I removed ETN's from Deutsche Bank a couple of years ago.
Thank you for laying out all the details.

Given all of these safeguards, I personally don't see a realistic scenario where one could lose all their money with these WisdomTree ETPs.
Laurizas
Posts: 515
Joined: Mon Dec 31, 2018 3:44 am
Location: Lithuania

Re: HEDGEFUNDIE Strategy for European Investors

Post by Laurizas »

So, what do you think, in comparison with this ETF, how much Wisdomtree is riskier?

https://www.justetf.com/en/etf-profile. ... 1#overview
tradri
Posts: 606
Joined: Tue Mar 23, 2021 5:42 pm

Re: HEDGEFUNDIE Strategy for European Investors

Post by tradri »

Laurizas wrote: Thu Apr 22, 2021 11:36 am So, what do you think, in comparison with this ETF, how much Wisdomtree is riskier?

https://www.justetf.com/en/etf-profile. ... 1#overview
Please somebody correct me if I'm wrong, but I don't see any practical difference between the Swap-ETF you linked and the WisdomTree ETPs.

Both get a leveraged exposure to their underlying index through the same swap counterparty (BNP Paribas Arbitrage) and both are collateralized in the event of default.

The only reason (I think) that the WisdomTree ETPs are being treated as "fully collateralized ETCs", is to circumvent the UCITS-restriction that imposes a limit of 2x leverage on funds.
Henri111
Posts: 20
Joined: Thu Apr 22, 2021 6:45 am

Re: HEDGEFUNDIE Strategy for European Investors

Post by Henri111 »

I still forgot to add: The author of this topic mentioned Wisdomtree 10 year 3x as the leveraged solution for treasuries. Notice that the exact details are that we're talking about treasuries from 6-10 year maturity. Meaning this is not the same as the well know US version, TLT or TMF, which is about the 30y treasury bonds. The hedge you're having against falling markets is way smaller with the Wisdomtree one. I did some QUICK calculations and came to the conclusion that the Wisdomtree 10y 3x performs +- like TLT at 1.5x. To be taken in calculation when compiling your portfolio.

So, actually a 30y treasuries ETP with leveraged 2 would already outperform the Wisdomtree one. However, I don't seem to find it. Lyxor has a -2x 30y and Wisdomtree has a -3x 30y (both inverse) but no longs. I wonder why that is ... If someone knows of a better product, I'd be happy to hear that.
tradri
Posts: 606
Joined: Tue Mar 23, 2021 5:42 pm

Re: HEDGEFUNDIE Strategy for European Investors

Post by tradri »

Henri111 wrote: Sat Apr 24, 2021 1:46 pm I still forgot to add: The author of this topic mentioned Wisdomtree 10 year 3x as the leveraged solution for treasuries. Notice that the exact details are that we're talking about treasuries from 6-10 year maturity. Meaning this is not the same as the well know US version, TLT or TMF, which is about the 30y treasury bonds. The hedge you're having against falling markets is way smaller with the Wisdomtree one. I did some QUICK calculations and came to the conclusion that the Wisdomtree 10y 3x performs +- like TLT at 1.5x. To be taken in calculation when compiling your portfolio.

So, actually a 30y treasuries ETP with leveraged 2 would already outperform the Wisdomtree one. However, I don't seem to find it. Lyxor has a -2x 30y and Wisdomtree has a -3x 30y (both inverse) but no longs. I wonder why that is ... If someone knows of a better product, I'd be happy to hear that.
If you look at the Simba backtesting spreadsheet (viewtopic.php?p=5822849#p5822849) and compare the HEDGEFUNDIE strategy to 3x S&P 500/3x ITT, the results are almost identical. Depending on which start/end date you choose, sometimes including 3x long term treasuries produces a higher return, sometimes including intermediate term treasuries produces a higher return.

Long term treasuries and intermediate term treasuries seem to have a very similar negative correlation to stocks. (https://www.portfoliovisualizer.com/ass ... rrelations)

While long term treasuries have a higher return than intermediate term treasuries, when you put them in a 3x leveraged ETF, long term treasuries lose more due to volatility decay, because they are more volatile.

All in all, the backtests show that it doesn't really matter whether you choose intermediate term treasuries or long term treasuries.
Henri111
Posts: 20
Joined: Thu Apr 22, 2021 6:45 am

Re: HEDGEFUNDIE Strategy for European Investors

Post by Henri111 »

Hi Tradri,

thank you for taking the time to put the 2 different bonds besides each other. That's appreciated! And I'm happy to hear your conclusion. I'll test it out on my portfolio.
simonkuznets
Posts: 1
Joined: Fri Apr 30, 2021 1:00 pm

Re: HEDGEFUNDIE Strategy for European Investors

Post by simonkuznets »

Hi guys, I am from Europe also. Any solution to this problem? I cannot find a broker that allows this strategy.
Henri111
Posts: 20
Joined: Thu Apr 22, 2021 6:45 am

Re: HEDGEFUNDIE Strategy for European Investors

Post by Henri111 »

Hi Simon,

I should be able to help. Which part is giving difficulties?

Products mentioned are offered by Wisdomtree
https://www.wisdomtree.eu/nl-be/-/media ... t-list.pdf

Taking into account my and Tradri his last message in regard to the bonds.

I'm with 2 brokers and both of them allow purchasing them
Interactive Brokers US
Bolero Belgium

Etoro does not.

Does this get you started?
tradri
Posts: 606
Joined: Tue Mar 23, 2021 5:42 pm

Re: HEDGEFUNDIE Strategy for European Investors

Post by tradri »

I just wanted to mention that I abandoned the HFEA strategy. viewtopic.php?p=5970554#p5970554
VS000
Posts: 7
Joined: Wed Sep 30, 2020 10:53 am

Re: HEDGEFUNDIE Strategy for European Investors

Post by VS000 »

tradri wrote: Sat May 01, 2021 2:33 am I just wanted to mention that I abandoned the HFEA strategy. viewtopic.php?p=5970554#p5970554
Which funds are you going with instead? SCV?
tradri
Posts: 606
Joined: Tue Mar 23, 2021 5:42 pm

Re: HEDGEFUNDIE Strategy for European Investors

Post by tradri »

VS000 wrote: Mon May 03, 2021 4:29 am
tradri wrote: Sat May 01, 2021 2:33 am I just wanted to mention that I abandoned the HFEA strategy. viewtopic.php?p=5970554#p5970554
Which funds are you going with instead? SCV?
The JPGL sounds very enticing. https://community.rationalreminder.ca/t ... lio/3340/2
Fonfo
Posts: 15
Joined: Mon Aug 02, 2021 10:55 am

Re: HEDGEFUNDIE Strategy for European Investors

Post by Fonfo »

I hear that with etoro you can buy the tmf and other letfs via cfd without the leverage of this cfd?

Can anyone with an etoro account confirm that?
foxtalksfinance
Posts: 1
Joined: Sun Sep 19, 2021 6:21 am

Re: HEDGEFUNDIE Strategy for European Investors

Post by foxtalksfinance »

I can confirm eToro lets you "buy" UPRO/TMF/TQQQ/FAS/UDOW etc. as a "CFD" ("unleveraged", or 2x) - I started my HFEA variation with a bit of TQQQ + FAS/UDOW in March. (~70% CAGR so far this year)

I've just moved some other money into IKBR and started a similar adventure with margin rather than leveraged ETFs, but they also have access to some of the 2x/Wisdomtree 3x products discussed - won't let direct UPRO/TMF etc. investment (let's you look at it)
Laurizas
Posts: 515
Joined: Mon Dec 31, 2018 3:44 am
Location: Lithuania

Re: HEDGEFUNDIE Strategy for European Investors

Post by Laurizas »

foxtalksfinance wrote: Sun Sep 19, 2021 6:24 am they also have access to some of the 2x/Wisdomtree 3x products discussed
Wisdomtree products are not ETF's, they are ETN's.
What do you think, in comparison with this ETF, how much Wisdomtree is riskier or they have equal risk despite legal form (ETN vs ETF)?
https://www.justetf.com/en/etf-profile. ... 1#overview
antisa
Posts: 30
Joined: Sun Nov 15, 2020 1:49 am

Re: HEDGEFUNDIE Strategy for European Investors

Post by antisa »

So, if I am not mistaken, European investors could use UPRO/TMF without problems (if they would find a broker through which they can buy it) as long as the UPRO/TMF value is below $60,000.

Is that correct?
Laurizas
Posts: 515
Joined: Mon Dec 31, 2018 3:44 am
Location: Lithuania

Re: HEDGEFUNDIE Strategy for European Investors

Post by Laurizas »

Yes. I heard Europeans could do that using Interactive Brokers but one has to have a status of professional or something like that.
seajay
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Contact:

Re: HEDGEFUNDIE Strategy for European Investors

Post by seajay »

tradri wrote: Sat May 01, 2021 2:33 am I just wanted to mention that I abandoned the HFEA strategy. viewtopic.php?p=5970554#p5970554
Indeed (agree). The more I looked the more I saw leveraged ETF's tending to just broadly provide the same reward as 1x but with scaled up volatility along the way. Post 2009 has seen a zig well above 1x, but sooner or later a deep zag might be expected. Something along the lines of this type progression/motion.

Still could be OK rewards however, not dissimilar to that of 40/60 SPY/TLT for 40/60 UPRO/TMF, but with more volatility along the way and not the consistent great gains that have been seen since the post 2009 zig era. Those late to the party, starting near/at the zig peak, could however have subsequent deep regrets and end up capitulating after large declines/losses.
DrKasache
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Joined: Sat Mar 19, 2022 8:14 am

Re: HEDGEFUNDIE Strategy for European Investors

Post by DrKasache »

Still no European alternative?
DarkMatter731
Posts: 224
Joined: Sat Apr 25, 2020 8:28 am

Re: HEDGEFUNDIE Strategy for European Investors

Post by DarkMatter731 »

DrKasache wrote: Sat Mar 19, 2022 10:11 am Still no European alternative?
There are plenty of alternatives.

1) Use a US broker like Tastyworks.

2) Use futures -> this is what I do.

3) Use other alternative ETFs/ETNs.
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