Volatility in Technology Companies is Increasing

Technology companies’ share prices have hit some turbulence. Thanks to rising interest rates and inflation, volatility in the tech sector has been elevated all year. And as the Nasdaq 100 – a popular gauge used to follow the US tech sector – has fallen steeply from its all-time pandemic-induced highs, investors are wondering how to profit from or protect against this influential sector.

Short and long Nasdaq 100 funds issued by Global X offer one solution. In this article, we look at how they work and the benefits and risks they offer.

What Do Short and Long Funds Do?

Long and short funds magnify the ups and downs of the Nasdaq 100. They are kind of like mirrors and magnifying glasses.

Global X Ultra Short Nasdaq 100 Hedge Fund (ASX Code: SNAS)
Global X Ultra Long Nasdaq 100 Hedge Fund (ASX Code: LNAS)

The short fund, known by its ASX ticker SNAS, is like a mirror. It moves in the opposite magnified direction to the share market, rising in value when the Nasdaq falls, and falling when it rises. In this way, SNAS, like short selling, can provide a way to profit from or hedge against a falling share market.

^{Past performance is not a reliable indicator of future performance.}

The long fund, or LNAS, is the magnifying glass. It follows the Nasdaq up and down – but to a magnified degree. In this way, LNAS gives investors a tool for expressing strong views on the movements of technology stocks.

The charts above and below illustrate what the results can look like.

The chart above shows the performance of both funds and their index since the start of 2022. When the Nasdaq 100 rose, LNAS, the long fund, typically rose more than the index. When the index fell, LNAS fell even more. It moved up and down much like its index – but to a greater degree.

^{Past performance is not a reliable indicator of future performance.}

SNAS by contrast has moved in the opposite direction to the Nasdaq 100. When the Nasdaq 100 fell, SNAS performed well. From March through to May of 2022, during Russia’s initial invasion of Ukraine, was one such period. By contrast, when the Nasdaq 100 rises, SNAS falls—always moving in the opposite direction to LNAS.

These funds differ to derivatives – like options and CFDs – in that they are more transparent and easier to trade. They can also offer less risk than these options as we discuss below.

How Do They Work?

Leveraged long and short funds use Nasdaq 100 index futures to achieve their aims. SNAS sells Nasdaq index futures. Whereas LNAS buys them.

To magnify the ups and downs, these futures are traded “on margin”, by our trading desk. Our trading professionals monitor the exposure to the Nasdaq 100 to keep gearing within a set band of 200 to 275% of the fund’s net asset value. When gearing becomes too low, they increase the exposure to bring it back up. When gearing becomes too high, they reduce exposure to bring it back down. This means the actual degree of gearing varies day to day—but is always actively managed. The level of gearing can be viewed on our website every day.

Crucially, all gearing is managed within the funds. This means that investors never face margin calls. It also means SNAS and LNAS can never cause investors to lose more money than they put in. This makes LNAS and SNAS different from – and potentially safer than – outright short selling and derivatives trading, where investors can face margin calls and losses of potentially more than their original investment.

How are the Prices Determined?

As the funds use futures, their prices follow the futures market.

It is important to note that futures markets can move in different directions to the share market—especially for Australian investors. This tends to occur for two major reasons: time zone differences between Australia and the US; and the more flexible trading hours that the futures market allows.

Unlike shares, futures are traded almost 24 hours a day six days a week. This can mean, for example, that even when Nasdaq 100 index falls throughout the Chicago trading day, the Nasdaq 100 index futures held in our funds rise throughout the Sydney trading day. This could occur, for instance, because traders believe that the Nasdaq 100 will rise the following morning in Chicago.

What are the Risks?

It is important that investors understand that LNAS and SNAS are not like index-tracking exchange traded funds (ETFs). Instead, they are actively managed hedge funds, and come with a higher degree of risk than ETFs.

As leveraged short and long funds magnify both the profits and losses investors experience, they are only appropriate for short term trading and any holdings should be actively monitored. They should not be used as buy and hold investments.

Related Funds

LNAS: The Global X Ultra Long Nasdaq 100 Hedge Fund is an actively managed fund that aims to provide investors with geared returns that are positively related to the returns of the Nasdaq-100 Index by investing primarily in a portfolio of long E-mini Nasdaq-100 Futures contracts listed on the Chicago Mercantile Exchange.

SNAS: The Global X Ultra Short Nasdaq 100 Hedge Fund is an actively managed fund that aims to provide investors with geared returns that are negatively related to the returns of the Nasdaq-100 Index by investing primarily in a portfolio of short E-mini Nasdaq-100 Futures contracts listed on the Chicago Mercantile Exchange.

Click the fund name above to view the fund’s current holdings. Holdings are subject to change. Current and future holdings are subject to risk.