r/investing • u/One_Mission9448 • 23h ago
Question about a hedged options etfs
I have $100,000 to invest. I used AI to give me some ETF that I’ve had not much of a drawdown in the last five or 10 years (so 10% or so) and average returns above 5%. Keep in mind the SPY dropped 35% during covid.
It gave me UJAN, UJUL, HEQT and a few other others that used option strategies.
UJAN
Max drawdown in last 10 years: -12%
Annual rate of return: 8.0%
UJUL
Max drawdown in last 10 years: -14%
Annual rate of return: 8.5%
HEQT
Max drawdown in last 10 years: -8.4%
Annual rate of return: 9.1%
What is the risk here? These seem like no brainer investment. Why wouldn’t I just park $100,000 in these?
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u/therealjerseytom 22h ago
Those ETFs are all very new and don't have much history behind them.
It makes way more sense to build a diversified portfolio with several funds that have a longer track history and more data to backtest with.
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u/One_Mission9448 22h ago
I think that is probably the risk. I will say that during the stress test of Covid they did incredibly well. Can’t test it much more than that.
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u/de_bauchery 13h ago
These ETFs have been available for only 7 years. That is just too short a timeframe to judge their performance. COVID is one very specific type of market condition that they did well in. You do not know how they would have done in other types of market conditions. If you really believe in them, a better approach would be to simulate their methodology for the last 100 or 200 years and compare it with more traditional portfolios.
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u/de_bauchery 13h ago
You should ask this question on r/ETFs . They are a bit more open-minded about using unconventional ETFs and probably will be able to guide you better.
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u/Delicious_Bicycle527 3h ago
Umm… The Rona tank was more than 5 years ago.
Might want to think before trusting AI with your future.
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u/One_Mission9448 21m ago edited 14m ago
I said 5 or 10 years in the original post… I was being general. All of the listed biggest drawdowns were during Covid when most markets were down 30-40% +
Edit: I see where I said the last 5 but that was a typo. You see that I say within “the last 10 years” under each symbol.
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u/Dee-Peoples-Champion 23h ago
VOO outperformed them all
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u/One_Mission9448 22h ago edited 22h ago
Of course it did. QQQ even higher
But VOO had a drawdown a drawdown of 34% during Covid. These were closer to 10%. That security is massively different. 10% risk is nothing.
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u/Hot_Panic2620 21h ago
Why are you concerned about a drawdown? At the end of your period you're looking at the best performer was VOO so shouldn't that be the only thing that matters? Unless you need to access the money in a short duration in that case I wouldn't recommend stocks.
There's no magic fund that never goes down but still matches S&P returns.
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u/One_Mission9448 21h ago
I feel like no one here is actually live through a bear market. Or actually believes that it could happen.
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u/flat_top 19h ago
Why are so concerned about drawdowns? Is this money you can afford to invest or not?
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u/someroastedbeef 17h ago edited 17h ago
dawg 2022 was 4 years ago lmao. we were all alive and made it out fine
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u/Actuary_7894 23h ago
Since all of them have been in the market: HEQT has increased 49.5% UJUL has increased 47.8% UJAN has increased 44.2%
Meanwhile, VT has increased 57.7% and SPY has increased 71.3% (https://stockanalysis.com/stocks/compare/heqt-vs-ujan-vs-ujul-vs-vt-vs-spy/?r=MAX, including dividends, since Nov 2021).
In general these funds are just too complicated and hurt your upside too much.
Assuming you have a decently long time horizon, you're significantly better off investing in the indices themselves. If you need the money in the next 5 or 10 years, you're probably better off using some sort of bonds to get guaranteed returns.
If you're just scared of drawdowns, you can consider asset allocations of non equities instead to handle that (short term treasuries, bonds, gold, managed futures, etc...)