HowTo: functional switchblade key for your Honda/Acura

HowTo: Make a fully-functional Honda / Acura switchblade / flip key for your 2001-2002 Acura 1.7 EL (aka 2001-2001 Honda Civic)

Note: This should also work well for Acura RSX's, and Acura TSX's ... TSX's are even easier as the immobilizer (I think) is identical to the Acura TL (which is built into the switchblade.)

Note 2: At the very least, the references at the bottom will help those of you with much newer cars to see which cars are compatible with which remotes :)




"Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime." (Chinese Proverb)

WARNING: Before you begin your quest for this DIY, be sure to understand the 3 key component specifics of your car:
a) FCC ID (remote frequency)
b) key type (standard cut, or laser cut)
c) immobilizer chip type/ID (the RFID)

What?
- Make a functional OEM Honda/Acura switchblade key, to replace OEM key and remote. This DIY was 2 years in the making; I had a cut + programmed key that couldn't start the car for over a year as I put this project on the back burner... This is my story, this is my DIY.

Why read this DIY instead of others? Well, a few reasons:
- I've yet to find a DETAILED DIY with exact instructions.
- The *vast* majority of DIY for this mod requires risk - hacking of an existing key.
- My DIY approach involves off-the-shelf parts, with 0 hacking.

Level of difficulty
The level of difficulty is broken down into 3 sections:
a) finding the specifics to your car - challenging.
b) programming the remote to match your car - fairly easy.
b) disassembling the components using a screwdriver, and putting it back together - super easy.
c) finding a locksmith that can cut and clone car keys - hard to find, but easy when you do.


Why?
- First answer: because it's sexier and more compact than the OEM key!
- Smaller footprint, combining remote with key.
- Stronger RF remote signal compared to OEM remote. (*)

(*) NOTE: This is true, and false. From weakest to strongest, I've found the following:

- OEM remote held in hand.
- switchblade held in hand
- switchblade held to the chin
- OEM remote held to the chin.

If you don't like this mod, at least you learned something! Go ahead, try holding your remote to your chin!

What's so hard about all this mod?
It's not a matter of just cutting a key. The toughest part is the immobilizer chip embedded into the head of the OEM key. Without this RFID chip, the car will not start. And since it's covered in hard plastic, molded from the factory, it's very risky in removing it from the OEM key...

Is it worth it?
- That's for you to decide.

Cost:
- $60 Acura 3-button keyfob (non-laser cut key blank)
- $5 non-laser cut key cutting service
- $10 clonable RFID immobilizer chip blank
- $25 RFID chip cloning service

Parts required

1) Switchblade Key Fob
Requirements:
- the remote's FCC ID must match, otherwise none of the keyless options will work.

2) RFID chip
Requirements:
- must match exactly with what your car is equiped with.
- Must be programmable (most are rewritable)
Note: This is the step most people choose to hack up an existing key. (Plus, it's cheaper)

3) Locksmith / Dealer that can clone and cut your key
Requirements:
- Locksmith must be able to cut the key (standard cut in my case, or laser-cut, if required)
- Machine to CLONE the immobilizer chip. You are not looking to PROGRAM one, but to CLONE an existing RFID chip ...


What other cars are applicable?
- This, is one of the more challenging questions. To be honest, I don't really care :) I can help, but since I don't have every car out there, it will be a bit difficult. However, review the references below and it's all laid out for you to research.

Most difficult part of the typical DIY, and the typical approach:
- Hack up an existing key, dig out the RFID chip, glue it into your new remote.
- Looks easy eh? Well, I wouldn't risk it.

This is an extremely risky task, as the RFID chip is fragile, and you don't know exactly where it is...

How did I do it, and why hasn't anyone else done it?

I bought the fucking RFID chip off the internet. Yup. Simple as that. Why have I *not* seen anyone else do this? I'm guessing because they were unable to SOURCE the chip.

Look around deep enough, and you'll find tidbits of information about the process, the details, including the parts, but no one puts it all together.

What further complicates and confuses the hell out of everyone is you have different cars using different (RF) remotes, using different RFID chips ... This further clouds the research.

So before you go any further and totally fuck up these easy steps, make sure you confirm:
- FCC ID of your car's remote
- RFID chip ID/type
- key type (standard vs laser-cut)

Steps:

1) Do your research
- Research, research, research. I find Google, with the proper key words, will yield everything you need to know, and more.
- You need to determine the following:
- Does your key have an embedded immobilizer chip?
- What is the FCC ID for your remote? (to open/close doors/trunk, panic.)
- What is the immobilizer RFID chip type?

2001 Acura 1.7 EL / Honda Civic specifics:

remote FCC ID: OUCG8D-355H-A, G8D-355G-A, Omron Corporation
immobilizer chip: T5

2) Buy materials
- I bought my TL switchblade key @ http://stores.ebay.com/flipkey ... Note that there are TWO switchblades you can buy. One where the key blade is flush with the side of the remote, and the more 'standard' one.

- I bought my cloneable chip @ http://keysrus.info/

3) Program remote
- Program your new remote. Make sure all of the buttons function as designed. Note that you will not be able to start the car (even after you cut the key), as you're still missing the programmed immobilizer chip :)
- This may differ from remote to remote. Instructions for TSX/TL remote are here:


- Note: you can program a max of 3 remotes per car, and you must have all 3 when programming.
- Do not proceed any further with the DIY until you're able to program the remote. If you bought the wrong remote, you're screwed anyway.

4) Swap out immobilizer chip
- I won't go into too many details here, other than it's fairly straight forward. Just slowly take the remote apart without snapping/breaking any pieces.
- You'll see a chip shoved into a slot into the back of the head of the key. Use a small flathead screwdriver, and gently 'pry' out one side. It will come out just fine.
- Replace with the virgin immobilizer chip.

Figure: My remote taken apart. Note the slot in the head of the key.

5) Program chip, then cut.
- Call around, and find a place that can cut your key, and also CLONE the key. Don't ask or complicate it by saying you need the key 'programmed', or that you're doing a hack/mod. You just need the immobilizer information CLONED. The RFID will send out an identical response as your OEM key. This, is where my DIY differs greatly from others...

- Without this part of the puzzle, your car would not start...
- And of course, this is where it costs more than if you had chopped out the immobilizer chip from your OEM key...

6) Enjoy
- Once all the parts are together, you're done. Voila, and enjoy.
- There are variations in the above, such as:

- Some cars have the immobilizer chip in a tiny compartment, so you can easily take it out and put it into a switchblade. I think the Honda Fit's have this? i.e. it's a VERY EASY DIY.
- You can ignore all the immobilizer chip nonsense if you bypassed the immobilizer, by using an immobilizer bypass box, etc...

WHERE TO GET PARTS
Switchblades (appears to be non-OEM): http://stores.ebay.com/flipkey
- I bought my switchblade here. There are 2 types: Acura TL/TSX switchblade, and the Honda (??) key where the key blade is flush with the side of the remote (looks like a VW key)
- UPDATE: They don't seem to carry the Acura TL keys anymore ... Either buy the ones from him, or search eBay for 'acura switchblade' and get one there.

http://americankeysupply.com/index.php?main_page=product_info&cPath=50&products_id=384
This is the exact immobilizer chip that I need, however they do not sell to consumers. The nice sales guys there called around and found a local locksmith:

http://keysrus.info/
- I bought my immobilizer chip from Vlad. Why Vlad? American Key Supply helped me find the closest locksmith they had in their database that carried the chip I needed :) They are located in
Quebec, Canada.


http://www.lockshopltd.com/
- Nice small shop that's 30 minutes from Toronto, Ontario. They did the cutting and programming. They were surprised that it worked - I'm sure they have had many young people come in and try this mod with no success :)

http://www.autokeys.us
- I did not buy from here. Though, they seem to have quite a selection.

RFID chips: http://stores.ebay.com/esldomino-OBD-shop
- I did not buy from here. Sample eBay store selling the T5 chip.


REFERENCE LINKS
- FULL list of clonable chips, by manufacturer, car
http://www.armorlock.com/cloning_application_chart.pdf

- FULL list of transponder chips. NOTE: This company will *not* sell to consumers, only to locksmiths.
http://americankeysupply.com/index.php?main_page=index&cPath=50


- This site lists RFID chips for some cars.
http://www.keylessremotes4u.com/Acura-C1.aspx



This is way too much work!
- Then don't do it. Simple as that.
- There have been various 'services' out there that have tried to do this DIY as a one-off, but each has their disadvantages. I've found the following:

1) www.flipusa.com. This guy no longer does it.

2) HeelToeAuto.com
http://www.heeltoeauto.com/heeltoe-automotive-fastline-performance-milled-switchblade-key-info-page.html
- If you read the details, you will notice they will not return your key! i.e. it appears they hack up your key

3) a user ClubRSX(?) showed that he was able to do it, even swapping out a laser-cut key blank, and milling it to a standard key-blank. Turns out someone hacked that account and it was all a fake.

I have not used any of the above services, so my opinions above are based on research I did online.


NOTE for TSX/TL remotes: For the RSX [and/or cars without memory seating], to program the remote, you first have to disable the memory feature. Hold the lock and unlock buttons together, until the LED on the remote blinks twice. This will mean that it's disabled. If you don't do this first, the remote will only be able to lock the car, and unlock will not work. Acura TL and Accord programming are the same as TSX

Shout Outs
- ClubSI:Ontario & OT idiots :)
- ClubEL (now tunedImports.net)
- Telly @ ClubEL, the first modder I met

possible to install Windows Virtual PC on a VMWare virtual machine?

http://social.technet.microsoft.com/Forums/en/w7itprovirt/thread/c8b7ebeb-5af9-447e-802a-dd22b03e3bf0

Running IE6/7/8/9 side by side in Win7

http://blog.dotsmart.net/2009/06/24/using-windows-7s-xp-mode-to-run-ie-6-and-ie-7-side-by-side/

Everything about Windows 7

http://forums.mydigitallife.info/showthread.php?t=7126

From .iso torrent file, to hash checksum for the .iso, to loader info, to product keys!

Somali sea gangs lure investors at pirate lair

http://www.reuters.com/article/wtUSInvestingNews/idUSTRE5B01Z920091201?sp=true

http://tech-analysis.ucoz.com

http://tech-analysis.ucoz.com

Tons of great stuff here, inlcuding live Gold price charts, etc.

http://finance.yahoo.com/news/Investors-Corner-Cut-Stock-ibd-513588732.html?x=0&.v=1

Investor's Corner: Cut Stock Losses At 7%-8% In All Cases

• Victor Reklaitis
• On 6:32 pm EST, Tuesday November 24, 2009

As basketball season starts up again, countless coaches are no doubt shouting out this principle to their teams during practice: Defense wins championships.

In that same vein, knowing how to play defense is really what makes for a winning investment portfolio.

You can't always be on target with every stock that you pick.

But if you've got a sound strategy for selling losers, then you'll be ahead of the game.

"The whole secret to winning big in the stock market is not to be right all the time, but to lose the least amount possible when you're wrong," says IBD founder and Chairman William J. O'Neil in his book "How to Make Money in Stocks."

O'Neil adds that it's easy to tell when you're wrong. It's when a stock falls below the price that you paid for it, he says.

"Each point 20hat your favorite brainchild falls below your cost increases both the chance that you're wrong and the price that you're going to pay for being wrong," he says in his book.

So, always cut your losses at 7% or 8% from your purchase price, regardless of circumstances.

Research into the most successful stocks has found that market winners rarely fall more than 8% from their proper buy points.

Importance Of Cutting Losses

Moreover, as losses extend beyond 8%, the rebound needed to get back to break-even just keeps getting bigger and bigger.

An 8% loss requires a gain of just 8.7%. But a 20% loss needs a 25% gain to get even, and a 33% loss requires a 50% rise.

It gets even worse after that. A 50% loss needs a 100% gain to get back to break-even, and a 75% loss means that you need a 300% rise.

Another point 15 keep in mind is that you don't have to wait for a loss to hit 7% or 8% before you sell.

For example, you may want to get out at a 3% loss when the overall market is under distribution.

O'Neil notes: "If you're in a bear market like 2008 and you buy any stocks at all, you might get only a few 10% or 15% gains, so I'd move quickly to cut every single loss automatically at 3%, with no exceptions."

Investors might want to consider following a 3-1 ratio for taking profits vs. cutting losses.

That means if you're taking some 20% to 25% gains, then cut your losses at 7% or 8%. But if you're taking profits of just 10% to 15%, then get out at a 3% loss.

What about if you pyramided into a stock (which means buying some initial shares, then adding smaller amounts as the stock rises)? How does the 7%-8% sell rule apply in that case?

You have a choice if you bought shares in increments. You can scale out, selling at a 7% or 8% loss for each purchase, or just sell all of your shares at once.

Mindray Medical's (NYSE:MR - News) action in the summer of 2008 offers an example of how to minimize losses using the 7%-8% sell rule.

The stock broke out of a base, moving decisively beyond a buy point 15f 42.10 (point 1).

But quickly after that, in early August 2008, Mindray dropped more than 8% below that buy point 16oint 2).

An investor with a sound sell strategy would have sold all shares at that time -- no hesitation.

Cutting your losses then would have prevented further pain. By November 2008, the maker of medical gear had plunged even more, hitting a low of 12.31.

© Investor's Business Daily, Inc. 2009. All Rights Reserved.

http://www.optionmonster.com/

Even more links:

eBook - TA using Multiple Timeframes
http://ebook30.com/business/economics-and-finances/134031/technical-analysis-using-multiple-timeframes.html?ZnV6enl3dXp6eQ==

Forums WITH software!
http://www.friendlytraders.com

Some more links to go through

http://www.slopeofhope.com/

http://www.alphatrends.net/

EliteTrader site (forums, etc.)

Looks to have a fairly good/active forum, etc.

http://www.elitetrader.com/

Paper: Technical Analysis Around the World

"Technical analysis is not consistently profitable in the 49 countries..."

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1181367

Technical Analysis Around the World

Abstract:
Technical analysis is not consistently profitable in the 49 countries that comprise the Morgan Stanley Capital Index once data snooping bias is accounted for. There is some evidence that technical trading rules perform better in emerging markets than developed markets, which is consistent with the finding of previous studies that these markets are less efficient, but this result is not strong. While we cannot rule out the possibility that technical analysis compliments other market timing techniques or that trading rules we do not test are profitable, we do show that over 5,000 trading rules do not add value beyond what may be expected by chance when used in isolation.

Keywords: Technical Analysis, Quantitative, Market Timing

YouTube: Technical Analysis walkthrough videos

Some guy going thru the technicals on a regular basis. Unsure of his success rate and/or qualifications. Interesting...

http://www.youtube.com/user/Daytradervideos

PDF: Technical Analysis Plain and Simple 3rd Edition (2010)

Download the eBook as a PDF



http://www.filedownloadfull.com/forums/f7/technical-analysis-plain-simple-charting-markets-934961/

Also, as a general reference site, there's a whole bunch of eBooks available for download here:

http://www.filedownloadfull.com/forums/f7/

Steak: How to Turn Cheap “Choice” Steak into Gucci “Prime” Steak

http://steamykitchen.com/163-how-to-turn-cheap-choice-steaks-into-gucci-prime-steaks.html

ChartPatterns.com

http://www.chartpatterns.com/

Great site that not only has examples and tutorials on chart patterns (pennant, ascending triangles, etc.) but also a 'stock of the week' examples that outline what, and what to do with it.

Great chart below showing example of leveraged-ETF returns.

http://www.investopedia.com/articles/exchangetradedfunds/07/leveraged-etf.asp

Dissecting Leveraged ETF Returns

by Tristan Yates (Contact Author | Biography)

Leveraged exchange-traded funds are a relatively new and unfamiliar product to most investors, but they could be the ticket investors need to bring in increased returns.

These funds are designed to deliver a greater return than through holding regular long or short positions. In this article we explain what leveraged ETFs are, and how they work in both good and bad market conditions.

About Leveraged ETFs
Exchange-traded funds are traded on a stock exchange. They allow individual investors to benefit from economies of scale by spreading administration and transaction costs over a large number of investors.

Leveraged funds have been available since at least the early 1990s. The first leveraged ETFs were introduced in the summer of 2006, after undergoing almost three years of Securities And Exchange Commission (SEC) review. Leveraged ETFs mirror an index fund, but they use borrowed capital in addition to investor equity to provide a higher level of investment exposure. Typically, a leveraged ETF will maintain a $2 exposure to the index for every $1 of investor capital. The fund’s goal is to have future appreciation of the investments made with borrowed capital exceed the cost of the capital itself.

Maintaining Asset Value
The first investment funds that were listed on stock exchanges were called closed-end funds. Their problem was that pricing of the fund’s shares was set by supply and demand, and would often deviate from the value of the assets in the fund, or net asset value (NAV). This unpredictable pricing confused and deterred many would-be investors. (For more on closed-end funds, see Open Your Eyes To Closed-End Funds and Uncovering Closed-End Funds.)

ETFs solved this problem by allowing management to create and redeem shares as needed. This made the fund open-ended rather than closed-ended, and created an arbitrage opportunity for management that helps keep share prices in line with the underlying NAV. Because of this, even ETFs with very limited trading volume have share prices that are almost identical to their NAV.

Note: ETFs are almost always fully invested; the constant creation and redemption of shares does have the potential to increase transaction costs because the fund must resize its investment portfolio. These transaction costs are borne by all investors in the fund.

Index Exposure
Leveraged ETFs respond to share creation and redemption by increasing or reducing their exposure to the underlying index using derivatives. The derivatives most commonly used are index futures, equity swaps and index options.

The typical holdings of a leveraged index fund would be a large amount of cash invested in short-term securities, and a smaller but highly volatile portfolio of derivatives. The cash is used to meet any financial obligations that arise from losses on the derivatives.

There are also inverse-leveraged ETFs that sell the same derivatives short. These funds profit when the index declines and take losses when the index rises. (To learn more, see Can you short-sell ETFs? and our Short Selling Tutorial.)

Daily Rebalancing
Maintaining a constant leverage ratio, typically two-times the amount, is complex. Fluctuations in the price of the underlying index change the value of the fund’s assets, and this requires the fund to change the total amount of index exposure.

Example: Suppose a fund has $100 million of assets and $200 million of index exposure. The index rises 1% in the first day of trading, giving the firm $2 million in profits. (Assume no expenses in this example.) The fund now has $102 million of assets and must increase (in this case, double) its index exposure to $204 million. Maintaining a constant leverage ratio allows the fund to immediately reinvest trading gains. This constant adjustment, also known as rebalancing, is how the fund is able to provide double the exposure to the index at any point in time, even if the index has gained 50% or lost 50% recently. Without rebalancing, the fund’s leverage ratio would change every day and the fund’s returns, as compared to the underlying index, would be unpredictable.

In declining markets, however, rebalancing can be problematic. Reducing the index exposure allows the fund to survive a downturn and limits future losses, but also locks in trading losses and leaves the fund with a smaller asset base.

Example: Consider a week in which the index loses 1% every day for four days in a row, and then gains +4.1% on the fifth day, which allows it to recover all of its losses. How would a two-times leveraged ETF based on this index perform during this same period?

Day	Index Open	Index Close	Index Return	ETF Open	ETF Close	ETF Return
Monday	100.00	99.00	-1.00%	100.00	98.00	-2.00%
Tuesday	99.00	98.01	-1.00%	98.00	96.04	-2.00%
Wednesday	98.01	97.03	-1.00%	96.04	94.12	-2.00%
Thursday	97.03	96.06	-1.00%	94.12	92.24	-2.00%
Friday	96.06	100.00	+4.10%	92.24	99.80	+8.20%

By the end of the week, our index had returned to its starting point, but our leveraged ETF was still down slightly (0.2%). This is not a rounding error. It is a result of the proportionally smaller asset base in the leveraged fund, which requires a larger return, 8.42% in fact, to return to its original level.

This effect is small in this example, but can become significant over longer periods of time in very volatile markets. The larger the percentage drops are, the larger the differences will be.

Note: Simulating daily rebalancing is mathematically simple. All that needs to be done is to double the daily index return. What is considerably more complex is estimating the impact of fees on the daily returns of the portfolio, which we'll cover in the next section.

Performance and Fees
Suppose an investor analyzes monthly S&P 500 stock returns for the past three years and finds that the average monthly return is 0.9%, and the standard deviation of those returns is 2.0%.

Assuming that future returns conform to recent historical averages, the two-times leveraged ETF based upon this index will be expected to return twice the expected return with twice the expected volatility, (i.e. 1.8% monthly return with a 4% standard deviation). Most of this gain would come in the form of capital gains rather than dividends.

However, this 1.8% return is before fund expenses. Leveraged ETFs incur expenses in three categories: management, interest and transactions.

The management expense is the fee levied by the fund’s management company. This fee is detailed in the prospectus and can be as much as 1% of the fund’s assets every year. These fees cover both marketing and fund administration costs. Interest expenses are costs related to holding derivative securities. All derivatives have an interest rate built into their pricing. This rate, known as the risk-free rate, is very close to the short-term rate on U.S. government securities. Buying and selling these derivatives also results in transaction expenses.

Interest and transaction expenses can be hard to identify and calculate because they are not individual line items, but instead a gradual reduction of fund profitability. One approach that works well is to compare a leveraged ETF’s performance against its underlying index for several months and examine the differences between expected and actual returns.

Example: A two-times leveraged small-cap ETF has assets of $500 million, and the appropriate index is trading for $50. The fund purchases derivatives to simulate $1 billion of exposure to the appropriate small-cap index, or 20 million shares, using a combination of index futures, index options and equity swaps. The fund maintains a large cash position to offset potential declines in the index futures and equity swaps. This cash is invested in short-term securities, and helps offset the interest costs associated with these derivatives. Every day, the fund rebalances its index exposure based upon fluctuations in the price of the index and on share creation and redemption obligations. During the year, this fund generates $33 million of expenses, as detailed below.

Interest Expenses	$25 million	5% of $500 million
Transaction Expenses	$3 million	0.3% of $1 billion
Management Expenses	$5 million	$1% of $500 million
Total Expenses	$33 million	- -

In one year, the index increases 10%, to $55, and the 20 million shares are now worth $1.1 billion. The fund has generated capital gains and dividends of $100 million and incurred $33 million in total expenses. After all expenses are backed out, the resultant gain, $67 million, represents a 13.4% gain for the investors in the fund.

On the other hand, if the index had declined 10%, to $45, the result would be a very different story. The investor would have lost $133 million, or 25% of his invested capital. The fund would also sell some of these depreciated securities to reduce index exposure to $734 million, or twice the amount of investor equity (now $367 million).

Note: This example does not take into account daily rebalancing, and long sequences of superior or inferior daily returns can often have a noticeable impact on the fund’s share holdings and performance.

Summary
Leveraged ETFs, like most ETFs, are simple to use but hide considerable complexity. Behind the scenes, fund management is constantly buying and selling derivatives to maintain a target index exposure. This results in interest and transaction expenses and significant fluctuations in index exposure due to daily rebalancing. Because of these factors, it is impossible for any of these funds to provide twice the return of the index for long periods of time. The best way to develop realistic performance expectations for these products is to study the ETF’s past daily returns as compared to those of the underlying index.

For investors that are already familiar with leveraged investing and have access to the underlying derivatives (e.g. index futures, index options, and equity swaps), leveraged ETFs may have little to offer. These investors will probably be more comfortable managing their own portfolio and controlling their index exposure and leverage ratio directly.

To read more on leveraged ETFs, see Rebound Quickly With Leveraged ETFs.

by Tristan Yates, (Contact Author | Biography)

Tristan Yates writes articles on index investing, options strategies, and leveraged portfolio management for Investopedia and Futures And Options Trader and distributed through Yahoo! Finance, Forbes, Kiplinger, and MSN Money, and his research on leveraged ETFs has been cited by the Wall Street Journal. He is the author of Enhanced Indexing Strategies: Utilizing Futures and Options to Achieve Higher Performance. Yates has an MBA from INSEAD, a leading international business school, started his career managing risk for the $550B GNMA portfolio and helped lead the $1.1 Trillon securities restatement at Fannie Mae.

** This article and more are available at Investopedia.com - Your Source for Investing Education **

http://www.morningstar.ca/globalhome/industry/news.asp?articleid=ArticleID12920081521

Leveraged ETFs may not perform the way you think by Esko Mickels / Al Kellett | 18 Dec 08 | | Click the print icon in your browser to print this report. Their returns can deviate significantly from the index. The last several years have witnessed the introduction of a host of exchange-traded funds (ETFs) that let investors access asset classes in cheap and novel ways: Barclays Global Investors Canada Ltd. introduced funds of ETFs, Claymore Investments Inc. launched a series of fundamental index funds, and BetaPro Management Inc. gained popularity with its Horizons leveraged bull and bear funds. Investors have leapt at the opportunity, pouring billions into ETFs. At the end of November, Morningstar's database contained 92 ETFs in Canada with $17.3 billion under management. The rapid pace of innovation is tough to keep up with, and the financial engineering needed to create these complex products means investors don't always understand the risks involved. This is particularly the case with the Horizons BetaPro ETFs. A quick look at the recent performance of certain funds indicates something isn't quite right: for example, both the Bull (HGU) and Bear (HGD) versions of Horizons BetaPro S&P/TSX Global Gold ETF, which are supposed to be mirror images of each other, are down substantially this year. These funds clearly haven't performed the way many investors thought they would. A closer look at how these products work reveals some inherent quirks that can lead to significant deviations from the underlying index. There are different types of index funds and ETFs -- those that hold the same underlying securities as the index, and those that create a synthetic portfolio with a similar return through the use of derivatives such as futures, forwards, options and swaps. In Canada, Horizons BetaPro is currently the only provider of leveraged and inverse-leveraged ETFs. These use derivates in an attempt to match twice the daily performance of an index, which means their performance over periods greater than a day won't necessarily be two-times that of the index. The risks to investors lie in the execution of the synthetic strategy. Imagine two investors who want to make a bet on the price of Kryptonite, which is sitting at $100. The optimist invests in a two-times leveraged bull ETF, while his pessimistic counterpart buys units of the leveraged bear fund, each costing $100. The next day Kryptonite moves up 10% to $110. Ignoring fees and transaction costs, for the moment, the bull fund rockets to $120, and the bear fund falls to $80. The day after that, Kryptonite settles back to its original price of $100, a 9.1% retrenchment. To double that move, the bull fund goes down 18.2% to $98.19, and the bear fund gains the same percentage, rising to $94.55. Kryptonite is the same price it was at the beginning, yet both investors have lost money even before fees. When ETFs are rebalanced daily, negative compounding creates a drag that increases with higher volatility. Conversely, a market that trends in one direction without fluctuating can cause ETFs to return more than their benchmarks. Leverage exacerbates the effects of volatility, and over longer periods it can really penalize performance. For example, Horizons BetaPro estimates that before fees a two-times leveraged ETF tracking an index that's flat on the year with 25% volatility will lose 6.1%, and if there's 50% volatility it will lose 22.1%. Considering that the VIX, an index that tracks the implied volatility of the S&P500, is currently at unprecedented highs, it's easy to imagine the serious harm a buy-and-hold strategy could suffer when invested in this niche product. The upshot of having exposure to volatility is that you have to be correct not only on the direction of your investment, but also the path it takes to get there. When returns are extreme, volatility is usually high. This is dangerous because it makes ETFs prone to "perfect storm" macro events, which have a pesky habit of occurring more frequently than they're supposed to. It is precisely during times of stress that you might expect some of the bear ETFs to perform best, so you would be justifiably disappointed if they were down. Complicating matters further, there are a host of other factors, such as fees and transaction costs, that can cause an investor's return to deviate from the movements of the underlying exposure. Horizons BetaPro ETFs have a management expense ratio of 1.15%, which is low compared to most mutual funds, but significantly higher than many other passive strategies. Index funds offered by Claymore and Barclays have expense ratios more in the range of 50 to 60 basis points. On top of the management expense, Horizons BetaPro ETFs incur an expense on their forward contracts that ranges from 0.4% to 1% per annum, depending on the fund, plus the hedging costs incurred by the counterparty. The prospectus also lists a 0.25% discretionary redemption fee. When you add it all up, plus the fact that you incur brokerage fees to buy and sell them, these are expensive products. ETFs trade on exchanges similar to stocks. Hence, during periods of heightened uncertainty the bid-ask spread will often widen. This can result in orders transacting at prices that deviate from the net asset value (NAV). And for those funds that reference the price of a commodity, there is also basis risk, which is the risk that the price of the forward contract deviates from the spot price. Despite the drawbacks, leveraged and inverse-leveraged ETFs have benefits. They offer non-recourse leverage, which means the most investors can lose is their initial investment, despite essentially borrowing money to invest. And while short positions can theoretically incur unlimited losses, bear ETFs have limited liability. Many investors are also constrained in their ability to short, so inverse ETFs can solve this problem. Not to mention they provide access to areas of the market that would otherwise be difficult to invest in, such as gold bullion, natural gas and grains. Leveraged ETFs are short-term instruments, and the longer you hold them the higher the chance they will underperform their underlying exposure. Institutions often use them to hedge temporary unwanted exposures. But to use them for speculation is dangerous, because consistently predicting short-term movements in commodities and equity markets is virtually impossible, and when leverage is involved you're playing with fire. For longer-term investment you would be better off buying an ETF that actually holds the underlying securities rather than a synthetic exposure based on daily moves. Esko Mickels is a fund analyst with Morningstar Canada. Previously, he worked for two Canadian fund companies in equity research, communications and as an advisor. He earned a BA in economics from the University of Western Ontario, an MBA (finance) from the University of Toronto's Rotman School of Management, and has completed all three levels of the CFA program. Al Kellett is a fund analyst with Morningstar Canada. Previously, he was a fixed income trader and hedge fund analyst for a global financial institution. Al holds a Bachelor of Commerce degree from McGill University. He holds the Chartered Alternative Investments Analyst and Derivatives Market Specialist designations, and is currently working toward the Chartered Financial Analyst designation. Copyright © 2009 Morningstar Research Inc. All rights reserved. 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List of (all?) ETFs

Here's a sub-list of ETFs (go to the main site for all(?) ETFs)

http://etf.stock-encyclopedia.com/category/leveraged-etfs.html

15 most beautifully busty Japanese babes

Can't stop from posting this one :)

http://coedmagazine.com/2009/10/26/the-15-most-beautifully-busty-japanese-babes/