AS VOLUMES dwindle and interest in the stockmarket is progressively eroded by a market that doesn't trend, the promise of "long-term" growth is proving to be little more than an out of fashion misplaced optimism that is costing people money.
HMAS Set & Forget sank in 2007, along with HMAS Patience. We can't be waiting for purist ideas about value being reflected in the share price if it's going to take 20 years. We can't afford to be blindly optimistic in a market that has fallen 9.6 per cent a year for five years not until a reliable long-term trend returns. Until that day, until the tide starts to lift all boats again, including HMS Buy & Hold, you have to ask, just what are we going to do in a bear market?
Thankfully, for those of us that have been there before there is a well-worn pattern that involves the following steps. Stop losing money (we dealt with that last week). Trade, don't invest. Focus on stocks, not "the market". Take profits more often (because they won't last) or sell everything and stand on the shore rather than ride it out on the stormy sea.
But not all of us want to stand on the shore. Not all of us want to be risk free and as the rewards for being risk free become less and less interesting, we need something else to do while we wait for the bottom. Some of us want to take some risk, some of us want to try to make money. But the problem that constrains 90 per cent of us is that all we know is how to go long equities. But in a market that is falling, or ranging at best, the odds of picking a winner have gone from 85 per cent in the bull market (15 per cent of the ASX 200 went down in 2007) to 38 per cent in the current market (62 per cent of the ASX 200 went down in the past year). It is no longer easy to make money simply going long equities. So what else can we do?
The plain vanilla answer is learn to go short, something you can do through CFDs. But the truth is that most long-only investors would rather put their hand in a bucket of piranhas than open a leveraged derivatives account without really knowing what they are doing. Forex is another incarnation of CFDs and, quite honestly, what edge can you possibly have over the other millions of traders many of whom do it all day with a lot more understanding.
The other option is options, but the report from the options market is that liquidity has become an issue in a quiet market and even the plain vanilla call writers over existing holdings are finding it tough to pick up a premium that matches the risk that they take.
Then there are listed investment companies, akin to managed funds, which come in a variety of flavours/specialities the advantage of which is that they can be traded on the ASX like any other share.
And then there are Exchange Traded Funds and Exchange Traded Commodities and it is here you might find some amusement. There are now more than 60 ETFs and ETCs listed on the market and a number of ETF providers.
The issuers include Betashares, which has just launched a "bear" ETF that allows you to buy an ETF and effectively short the ASX 200 in doing so, and other players including iShares, Vanguard, State Street SPDRs, EFT Securities, and Russell Investments. See their websites for their products. You will find you can trade in indices, individual ASX sectors, commodity price ETFs and currencies. And then there are a host of more imaginative ETFs designed to suit the times, including at least three high-income/high-dividend select funds, bond ETFs, and there's even one that represents cash.
Some are "conventional" and some "synthetic". There are different risks with each one. Liquidity is often an issue, although some are so highly traded there is no issue.
It's all on the ASX website. The good thing about ETFs is that they trade in the same way as any other shares on the ASX. So you don't have to change anything just find out their codes and what they represent. It'll make a change from waiting for a bull market. Not everything is on the equity cycle. Have fun.
Frequently Asked Questions about this Article…
What practical steps can everyday investors take in a bear market?
In a falling or range-bound market the article recommends practical steps: stop losing money, consider trading rather than blindly ‘buy and hold’, focus on selecting individual stocks instead of following ‘the market’, take profits more often because gains may not last, or sell everything and wait on the sidelines until conditions improve. The piece emphasises being realistic about returns — the market had fallen about 9.6% a year for five years — so adjust your approach rather than relying on long-term optimism alone.
How can I get short exposure to the ASX 200 without using CFDs?
You can get short exposure via an ASX-listed ‘bear’ ETF. The article notes Betashares has launched a bear ETF that lets you buy a fund that effectively shorts the ASX 200. This provides a way to take downside exposure through a traded product instead of opening a leveraged CFD account.
What are ETFs and ETCs and why might they help in volatile markets?
ETFs (Exchange Traded Funds) and ETCs (Exchange Traded Commodities) are products listed on the ASX that trade like ordinary shares. The article points out there are more than 60 ETFs/ETCs offering exposures to indices, ASX sectors, commodities, currencies, high-income or high-dividend strategies, bonds and even cash. They let investors access different markets or hedge positions without changing how they trade on the ASX.
What are listed investment companies (LICs) and how do they differ from ETFs?
Listed investment companies are essentially investment vehicles similar to managed funds but listed on the ASX so you can buy and sell them like a share. The article describes them as coming in a variety of 'flavours' or specialties and highlights their advantage is tradability on the ASX, whereas ETFs typically track an index or specific asset and trade with intraday liquidity.
What risks do CFDs, forex and options carry in a quiet or falling market?
The article warns that CFDs and forex are leveraged derivatives and can be very risky for investors who don’t fully understand them — many long‑only investors would avoid opening such accounts. Options markets also face problems in a quiet market: liquidity can dry up and even simple call writing on holdings may not generate premiums that fairly compensate the risk.
What’s the difference between conventional and synthetic ETFs and why does it matter?
The article notes some ETFs are 'conventional' and some are 'synthetic', and that each type carries different risks. Conventional ETFs typically hold the underlying assets, while synthetic ETFs use derivatives to replicate returns (the article doesn’t detail mechanics). Because the structures differ, the associated risks and counterparty considerations also differ, so it’s important to be aware of the type when choosing an ETF.
How can I check ETF liquidity and choose the right ETF issuer on the ASX?
According to the article, the ASX website lists ETFs and ETCs and is a good starting point to find product codes and what each fund represents. Liquidity varies by ETF — some are highly traded and pose no issue, while others can be thin. The article also mentions major issuers like Betashares, iShares, Vanguard, State Street SPDRs, ETF Securities and Russell Investments, so check trading volume, spreads and issuer information before trading.
Are there ETFs focused on income or defensive strategies for uncertain markets?
Yes. The article mentions a number of more imaginative ETFs designed for the times, including at least three high‑income/high‑dividend select funds, bond ETFs and even an ETF that represents cash. These products can offer alternative income or defensive exposures when conventional cash returns or equity returns are unattractive.
Call 1300 880 160
Start a chat
Schedule a call
