FactorShares 2X (NYSE:FSG): For Only the Most Hardcore Gold Enthusiast

Bearish on equities? Bullish on gold? Upset you’re not getting a significant enough return when you’re right about both? Here’s your chance to ultra-capitalize on your belief.

Joshua Brown over at The Reformed Broker has targeted what he sees as the single exchange-traded fund (ETF) that has absolutely “owned” this moment in time. The FactorShares 2X: Gold Bull/S&P500 Bear (NYSE:FSG) ETF is double-long gold and double-short the S&P 500.

From The Reformed Broker:

“Yesterday I spoke with the creator of the fund, FactorShares’ Director of Operations Matt Brown (who is no relation but is a TRB reader). He explained the mechanics of how the fund operates and what it’s meant to accomplish. $FSG is registered under the 1933 Act (commodities pool) as opposed to the exemptive relief provision of Investment Company Act of 1940 (like most ETFs). It uses futures (e-mini for S&P 500 and rolling GSCI for Gold).

“Like any futures-based product, it is subject to contango risk (although hopefully less than a UNG-type fund because of how liquid SPX and Gold futures markets are) and it obviously works best in trending markets (today is the 8th straight day of down stocks and up gold, how about that for a trend?).  Matt tells me there is a daily rebalance to ensure dollar neutrality.

“The all-in management fee gets up to about 1.13% but when you consider that the fund is 2X leveraged on both the long and short side, that works out to a more reasonable number when all is said and done.”

As Joshua Brown points out, FSG has been trading since February of this year and now has about $6 million in assets. It’s, of course, subject to its own unique risks that require sorting through, but it could be interesting to the most hardcore of gold enthusiasts. Much like Joshua Brown also indicates in his comments, this post is no endorsement of the ETF… it’s simply a fascinating specimen. You can read more details in Brown’s post on the current market’s belle of the ball.


Rocky Vega,
The Daily Reckoning