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Rekenthaler Report

The Flip Side of Market Bubbles

Danger for some, investment opportunity for others.

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The Bubble Index
In early 2017, Bloomberg editor Joe Wiesenthal tweeted, “A good ETF would be to take companies/markets that journalists say are in a bubble and then to go long them.” A portfolio manager at the investment firm GAM, Paul McNamara, took up the challenge, and created a hypothetical portfolio of oft-derided securities. Among them were  Tesla (TSLA) and  Netflix (NFLX), a bitcoin fund, long bonds, a Chinese real estate trust, and an exchange-traded note that shorted U.S. stock volatility.

The Bubble Portfolio gained 80% for the rest of 2017, dropped 23% the following year (its short-volatility note liquidated after losing more than 90% of its value), and has rebounded to gain 17% so far this year. That makes for a 25%-plus annualized return (I can’t state precisely, as I don’t have the portfolio’s official start date), albeit with some significant variability.

John Rekenthaler does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.