This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Abacus vs. 'The Ultras'

This post appeared yesterday on RealMoney . Click here for a free trial, and enjoy incisive commentary all day, every day.

Just for giggles, let's compare and contrast "Abacus" and "the Ultras."

Abacus, of course, is the transaction at the center of the SEC's civil complaint with Goldman Sachs (GS - Get Report); "Ultras" is the catchall phrase associated with all of the double-levered, triple-levered and short-side ETFs.

Both Abacus and Ultras are derivative products, and both utilize swaps.

Abacus was privately marketed solely to sophisticated and qualified institutional investors, who themselves acted as fiduciaries and made their living analyzing, modeling, managing and investing in structured products. Ultras are advertised in the papers, they're available to the general retail public, and you don't need a margin account (a selling point highlighted in their advertising) or special suitability documentation to buy Ultras.

Abacus referenced asset-backed securities and delivered the returns based on the performance of the underlying mortgage pools -- the purchasers understood, and could analyze, the risk they were getting, and they got the risk they sought. Ultras reference stocks and baskets of stocks, yet their performance does not match the performance of those baskets per se -- it is a path-dependent performance and may very well have large tracking errors if used for longer than a one-session holding period (despite the fact that most people do not associate ETFs and mutual funds as intraday holdings). Many Ultra investors have ended up with a much different risk profile than they sought.

In Abacus, the "winner" was a neophyte to the structured products market, the "losers" were dedicated structured products professionals who sat on panels at securitization conferences as experts in their field. In Ultras, the "winners" are those who understand the quirks, the "losers" are those who lack the sophistication to understand those quirks. In fact, there is a built-in "greater fool" premise to the Ultras' very existence -- if used as directed, the companies would have no assets under management.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
GS $191.27 0.00%
AAPL $129.36 0.00%
FB $79.60 0.00%
GOOG $573.64 0.00%
TSLA $199.56 0.00%


DOW 18,203.37 -85.26 -0.47%
S&P 500 2,107.78 -9.61 -0.45%
NASDAQ 4,979.9010 -28.1950 -0.56%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs