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10 Contrarian Ideas for the Summer

ETFs for buying U.S. Treasuries include TLT, the iShares Barclay's 7-10 Year Treasury Bond Fund (IEF) and the iShares Barclay's 1-3 Year Treasury Bond Fund (SHY).

There is one ETF for selling (shorting) Treasuries: the ProShares Ultrashort 20-Plus Year Treasury (TBT). An investor has the choice of shorting one of the three long-position funds or buying the leveraged long-term bond short position fund.

Reminder No 1: The three iShares funds pay dividends monthly, worth between 3% and 4% per annum. If you are short any of these, you will pay the dividend each month. Reminder No. 2: TBT has the same problem as many other funds, particularly leveraged funds, of accumulating daily tracking errors. Performance over many months can be much less than expected for perfect tracking.

Here are some additional cautions to help you avoid jumping in front of a speeding train:

  • Some of the ETFs mentioned in this article are leveraged. An investor should always study the prospectus carefully before investing. Tom Lydon has written about some of the things you should be aware of regarding leveraged ETFs. (In this article we mentioned the long-term tracking problem several times and gave one detailed example in idea No. 7, real estate.)
  • Present prognostication is no guarantee of future results. Do your own due diligence. Study the images you see of speeding trains and then decide which are real trains and which are illusions.

Again, just remember, one always has the option of buying puts on a long ETF (if optionable) rather than selling short or buying an inverse ETF.
At the time of publication, The author, family members and his clients own SKF. Family members and clients own Vanguard Health Care (VGHCX).

John B. Lounsbury is a financial planner and investment adviser, providing comprehensive financial planning and investment advisory services to a select group of families on a fee-only basis. He worked for 34 years with IBM, and spent 25 years in R&D management and corporate staff positions. He also was a Series 6, 7, 63 licensed representative with a major insurance company brokerage for nine years.

Specific interests include political and economic history and investment strategy analysis. He holds degrees from the University of Vermont, Columbia University and the Illinois Institute of Technology, where he studied chemistry, physics and mathematics. He is a contributor to Seeking Alpha and his own blog, PiedmontHudson.
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