Fisher, Gartman: New Way to Bet on Volatility
Commodities traders Mark Fisher and CNBC contributor Dennis Gartman launched two exchange-traded notes (ETNs) on Wednesday that allow retail investors make quick wagers on the risk sentiment in the marketplace.
The securities—one for "risk on" and one for "risk off"—are a bet by the two veteran traders that global markets will continue to be subject to extreme day-to-day volatility.
“The Risk On ETN’s value is expected to rise when the outlook on markets and the broader economy is positive and to decrease when such outlook is negative,” according to a document by UBS, their partner in the new products.
“The Risk Off ETN’s value is expected to rise when the outlook on markets and the broader economy is negative and to decrease when such outlook is positive.”
The securities, based on a risk index created by the two through MBF Index holdings, began trading on the New York Stock Exchange Wednesday with the catchy tickers “ONN” and “OFF” . The Risk Off ETN tracks the inverse of the index.
Gartman and Fisher set out to assign a formula that defines the phrases “risk on day” and “risk off day” that have become standard lexicon on Wall Street.
For example, the risk index’s largest weightings are in global equities, oil and the euro . The index has short weightings (bets against) sovereign bonds and the Swiss franc.
To be sure, the new products are likely to face their share of criticism as profiting from, or—at their worst—promoting a volatile environment where buy and hold has no place and policy and economic uncertainty reigns.
Leveraged exchange traded funds that bet against the financials, like the Direxion Russell 1000 Financials Bearish 3X ETF , have received similar blame for exaggerating the moves in the underlying stocks and perpetuating a panic mentality.
Also, the Gartman-Fisher creations are entering what some may argue is already a crowded marketplace. The number of ETF-related products released in October was 26, according to research by Birinyi Associates, bringing the total number of funds to 1,345 with $1 trillion under management.
But UBS seems to be placing a bet on the star power of the index creators, as well as the uniqueness of a product that can give retail investors this kind of broad exposure across different markets with one click.
From its humble beginnings via fax in 1987, Dennis Gartman’s The Gartman Letter has become standard reading for traders around the world. The newsletter is known for in-depth analysis of global politics and the author’s daily prolificacy.
Beyond the money
At one time, Fisher’s MBF Clearing Corp handled more than a fifth of the volume on the NYMEX exchange. The press shy trader graduated summa cum laude from the Wharton School of Business at the University of Pennsylvania.
Legendary hedge fund manager Paul Tudor Jones called Fisher’s 2002 book, Logical Trader: Applying a Method to the Madness, a must read for beginning traders.
* Gartman is a paid contributor for CNBC.
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