Rekenthaler Report

The Flip Side of Market Bubbles

John Rekenthaler

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 shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.