The Anna Maria Island Sun Newspaper

Vol. 9 No. 49 - August 26, 2009


Bridge Street Merchants Assoc. expands its capability

Anna Maria Island Sun News Story

SUN PHOTO/TOM VAUGHT Members of the Bridge Street
Merchants Association at the traffic circle on the
west end of Bridge Street. The east end is their
preferred location for the Bridge Street Market,
which must relocate this fall.

The Historic Bridge Street Merchants Association is now a 501(c)3 non-profit group.

This status will allow the group to live up to its mission statement: A merchant group dedicated to promoting Bridge Street, the Bradenton Beach community and its businesses.

The association began several years ago to expand its image as the city’s main commercial district, which began from an historic past when the area’s main commerce was fishing. Since the street’s rehabilitation that began more than 17 years ago, an upscale hotel, several restaurants for all tastes, boutiques ranging from fashionable to eclectic and businesses to service real estate have settled in. The recent refurbishment of the Historic Bridge Street Pier with a restaurant and a bait shop offers fishing, a bayfront vista and a place to snack for shoppers. Tampa TV channel 13 recently filmed its live morning show on Bridge Street to share with its audience a variety of things to see, taste and do.

“It makes perfect sense for my business to be positioned at one of the most interesting areas of the entire island,” said Lynn Zemmer, of Waterside Lending. “I love being on Bridge Street.”

The group strives to balance commerce with charity, taking first place as the winning fundraising team in this year’s Relay for Life for the American Cancer Society.

Their outdoor market on Saturdays, held during season, features vendors offering fresh produce, unique gifts, live entertainment and more. It will relocate from an empty lot this year, possibly to Rotten Ralph's at the east end of Bridge Street.

Membership is open to those willing to work toward the group’s common goals and who own a business on or near Bridge Street. For more information, call 779-6836.

Anna Maria Island Sun News Story
Leveraged and Inverse ETFs Far From Perfect

Investment Corner

Exchange Traded Funds (ETFs) are now commonplace and considered a mainstream investment. The second wave of ETF innovation brought leveraged ETF shares, inversely correlated ETFs, and leveraged inversely correlated ETF shares to investors. The leveraged form uses futures contracts and options within the portfolio to provide an increased effect compared to the index the fund is designed to follow. Generally the leverage is designed to multiply the movement of the index by two or three times.

Inverse ETF shares are designed to move in the opposite direction of the underlying index. Again, future and options contracts are used to obtain this effect, allowing investors to bet against a particular stock or bond index by easily purchasing shares of an inversely correlated ETF, rather than going through the trouble of short-selling stocks or buying put options which have a limited lifetime.

Unfortunately, recent data reveals that the leveraged ETFs, inverse ETFs and leveraged inverse ETFs are subject to a process known as “degradation” over longer periods of time. Degradation relates to the fact that the options and futures used to construct these portfolios are wasting assets which expire at some point in the future. There is also a cost within the ETF portfolio for the continuous rebalancing necessary to keep the portfolio tracking the index in the closest manner possible.

What does this mean to you and me? If you want to own a leveraged or inverse ETF for a few days or a few weeks, you may not notice any problem with the ETF not tracking the underlying index with the targeted leverage (two or three times), and in the opposite direction for inverse versions. But hold the shares for several months or longer and you are likely to experience moderate or extreme disappointment.

The degradation effect described above is extreme enough over time to reduce the results of leveraged and inverse ETFs to the point where it is noticeable, and perhaps a total failure for the investor. The table below shows the results of various ETFs from ProShares, which are all tied to the S&P 500 Index. Data is through July 31, 2009 and was taken from the ProShares website. Keep in mind that the S&P 500 Index itself was down 19 percent over the last year.

In a 12-month period where the S&P 500 was down 19 percent, you would expect the “Short” or inverse versions to be up substantially – but the opposite has been true. You can also see the result of the leveraged “Ultra S&P 500” which should have gone down double what the S&P 500 Index went down, actually went down much more.

To their credit, the risk of degradation is disclosed in the prospectus for the ETFs from the sponsoring fund companies. How many prospectuses have you read lately? Most investors do not. Some brokerage firms are starting to ban trading in these funds by retail clients or at least issuing warnings about the risks.

It seems as though greed may have experienced its limit in the ETF world with these revelations. We suggest you steer clear of ETFs which are inverse or leveraged in nature, especially if they are not being used as shorter-term holdings. So far, ETFs which are positively correlated and unleveraged seem to be delivering results close to their goals and I encourage their use, where appropriate, as a legitimate investment vehicle in your portfolio.

Tom Breiter is president of Breiter Capital Management, Inc., an Anna Maria based investment advisor. He can be reached at 778-1900. Some of the investment concepts highlighted in this column may carry the risk of loss of principal, and investors should determine appropriateness for their personal situation before investing.

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