Wednesday, November 28, 2007

Profiting from the Weak Housing Market

Bear or bull, there's money to be made in the declining real estate market.

I found a great little ETF that allows investors to short the DJ Real Estate Index. By definition, because the ETF shorts the index, its price goes up with the DJ Real Estate Index goes down proportionately. Conversely, if the index goes up, the price of the ETF falls. The name of the ETF is UltraShort Real Estate ProShares and its trading symbol is SRS.

Now, from where I sit, there is very little positive to say about the housing market these days. And, if I am to believe what I read, things look primed to be much worse next year. While there are few guarantees in life and nearly none in the stock market, it seems like betting against the DJ RE Index makes a lot of sense.

What I find so interesting about this ETF is that that it can benefit those bearish on the RE market whether they own a home or not. For owners, buying an ETF like this one can act as a hedge against dropping home prices. For future owners, it's a way to potentially increase a future down payment.

Now with all of that said, this is still a risky investment. It's non-diversified, relatively-lightly traded, has relatively few shares outstanding, is subject to price volatility and it shorts an index that risen for most of its history. So, if you're considering getting into the ETF, discuss it with a licensed professional before you do, keep your investment to a small percentage of your portfolio and for God's sake, dollar cost average into it--it is way too volitile to try and time it.

(By means of disclosure, I invested in this ETF several weeks ago and the returns, while volitile, have been quite good. Furthermore, I am dollar-cost averaging into the ETF, buying on a dip, every few weeks.)

Viva los Osos!

1 comment:

Anonymous said...

this is one crazy EFT. not for the weak-hearted.

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