The market is bearish: this is an opportunity to discover a star product of the managers.
The BX what?
The BX4 is the ticker of an Amundi ETF well known to managers. It aims to replicate twice the inverse performance of the CAC 40. Clearly, it is not a classic investment product. It is used to hedge and play against the fall in the flagship Parisian index. So, when the CAC40 loses 1%, the BX4 gains 2%. And vice versa. The historic progression of the index combined with the leverage on the ETF brings the BX4 to levels close to the abyss. If we take a period of 10 years, its loss reaches 94%.
The BX4 price (source: Amundi)
A primarily psychological product
The BX4 is one of the management world’s favorite products. Its peak of popularity occurred during the financial crisis of 2008 when its price had multiplied by 3. But its use, which allows you to play the fall of the market, is in reality more complex than it seems . This is for two main reasons.
First, the theory would be that the investor buys BX4 for 50% of the total amount of his portfolio. Clearly, to cover a portfolio of €100,000, you would have to buy €50,000 of BX4, which, thanks to its x2 leverage, would cover the entire amount invested. But in reality, few people do this. Instead, managers will tend to buy a small amount of the tracker to limit risk and provide psychological relief.
Secondly, the beta (the coefficient which measures the movements of the portfolio in relation to its benchmark index) of the portfolio must also be correlated close to or equal to that of the CAC 40. Otherwise, the hedging risks not working properly.
The LVC, the antipode
The LVC tracker plays the rise of the CAC 40 with a lever of two. In short, it is the exact opposite of the BX4. When the CAC 40 gains 1%, the LVX increases by 2%: a good way to play on the index’s rebounds.
LVC (vert clair) vs BX4 (marron) : source : Zonebourse
Find here the BX4 on Zonebourse. And here the LVC.
2023-10-31 17:56:40
#BX4 #short #story #hedging #strategy
