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A Bit Less Defensive at Rydex


I NEVER mothball my party hat!


On July 27th, I went over a chart that showed how traders in the Rydex family of mutual funds were concentrating their assets in extremely defensive sectors like utilities while ignoring high-beta ones like semiconductors.

At the time, the spread between the assets in those two particular funds was striking, as it was at an historic extreme. It seemed sensible at the time to expect the divergence to narrow back towards its norm.

I've been asked a few times to follow up on the asset levels, so they're presented again in the chart below, along with the Utilities HOLDR (UTH) and the Semiconductor HOLDR (SMH).

Since that late July extreme, UTH has actually lost 0.8% as the surge of enthusiasm has waned. Semiconductor shares, on the other hand, have exploded higher by more than 13% - much to the chagrin of those who bailed out this summer and sunk the asset levels close to all-time lows.

What's this saying now? Well, utilities have barely budged for the past month and a half, but assets in the Rydex fund have dropped by more than 30% - surely a sign that those traders feel their money is best used elsewhere. It's not suggestive of excessive pessimism by any stretch, but at least the party hats have temporarily mothballed.

And despite that 13% jump in semis, assets are still under $40 million. Granted, that's double from where they were in July, but still less than half the peaks seen over the past couple of years.

There might still be some room for the UTH/SMH divergence to narrow, but the impetus for pointing out the relationship is gone and I wouldn't rely on these asset levels as a trade support any longer.

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No positions in stocks mentioned.

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