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6 Inverse ETFs Riding High on Tech Sell-Off This Week
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An outsized surge in U.S. yields took a toll on investors’ sentiment, leading to a risk-off trade especially in high-flying technology names. This is because tech stocks emerged as the biggest winner amid the pandemic thus becoming expensive.
Higher rates tend to hit hard the technology sector as it relies on easy borrowing for superior growth. Their value depends heavily on future earnings and as long-term yields rise, it lowers the present value of companies’ future earnings. The S&P 500 Information Technology Sector Index plunged 4.5% over the past week. In fact, the tech-heavy Nasdaq Composite Index has dropped 5.4% this week after registering the biggest sell-off on Feb 25 in four months (read: 5 Hot Tech ETFs to Tap on Beaten Down Prices).
Additionally, Tesla’s (TSLA - Free Report) crazy rally, which powered most of the technology sector last year, has fizzled out. The stock has plunged 25% and lost about $200 billion in market value since Feb 8 when the electric-car firm said that it had spent $1.5 billion on bitcoin in a bid to boost returns on cash.
The sell-off has resulted in a spike in inverse or inverse leveraged ETFs. These products either create a short position or a leveraged short position in the underlying index through the use of swaps, options, future contracts and other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a short period of time, provided the trend remains a friend (see: all the Inverse Equity ETFs here).
However, these funds run the risk of huge losses compared with the traditional ones in fluctuating or seesawing markets. Further, their performance could vary significantly from the actual performance of the underlying index over the longer period compared to a shorter period (such as, weeks or months).
We have highlighted six leveraged inverse ETFs from the tech space that piled up double-digit gains over the past week though these involve a great deal of risk when compared to traditional products.
Daily Dow Jones Internet Bear 3X Shares (WEBS - Free Report) – Up 22.2%
This fund provides three times inverse play on the Internet corner of the broad technology sector by tracking the Dow Jones Internet Composite Index. It has attracted $3.6 million in its asset base and charges 95 bps in annual fees. The ETF sees an average daily volume of more than 28,000 shares.
ProShares UltraPro Short QQQ (SQQQ - Free Report) – Up 18.7%
This ETF provides three times inverse exposure to the daily performance of the Nasdaq-100 Index, charging 95 bps in annual fees. It has AUM of $1.7 billion and trades in average daily volume of about 56.8 million shares. SQQQ charges 95 bps per year.
Direxion Daily Cloud Computing Bear – Up 17.2%
This ETF targets the cloud computing segment offering two times inverse exposure to the performance of the Indxx USA Cloud Computing Index. With AUM of $17 million, CLDS has expense ratio of 0.95% and trades in average daily volume of 5,000 shares (read: Can Cloud Computing ETFs Keep Soaring?).
BMO REX MicroSectors FANG+ Index -3X Inverse Leveraged ETN (FNGD - Free Report) – Up 15.4%
This note seeks to offer three times inverse leveraged exposure to the NYSE FANG+ Index, which is an equal-dollar weighted index targeting the highly-traded growth stocks of next-generation technology and tech-enabled companies in the technology and consumer discretionary sectors. The ETN has accumulated $58.8 million in its asset base. It charges 95 bps in annual fees and trades in average daily volume of 2.4 million shares.
This product provides three times inverse exposure to the daily performance of the Technology Select Sector Index. It has amassed about $74.3 million in its asset base while charging 95 bps in fees per year from investors. Volume is good as it exchanges around 1.8 million shares a day on average.
This ETF provides three times inverse exposure to the PHLX Semiconductor Sector Index. It charges 0.95% in annual fees and trades in average daily volume of 3.6 million shares. It manages $76.3 million in its asset base (read: 4 ETFs to Invest in Shining Semiconductor Stocks).
Bottom Line
While the strategy is highly beneficial for short-term traders, it could lead to huge losses compared with traditional funds in fluctuating markets.
Still, for ETF investors, who are bearish on the tech sector for the near term, either of the above products could make an interesting choice. Clearly, these could be attractive for those with high-risk tolerance, and a belief that the “trend is the friend” in this specific corner of the investing world.
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6 Inverse ETFs Riding High on Tech Sell-Off This Week
An outsized surge in U.S. yields took a toll on investors’ sentiment, leading to a risk-off trade especially in high-flying technology names. This is because tech stocks emerged as the biggest winner amid the pandemic thus becoming expensive.
Higher rates tend to hit hard the technology sector as it relies on easy borrowing for superior growth. Their value depends heavily on future earnings and as long-term yields rise, it lowers the present value of companies’ future earnings. The S&P 500 Information Technology Sector Index plunged 4.5% over the past week. In fact, the tech-heavy Nasdaq Composite Index has dropped 5.4% this week after registering the biggest sell-off on Feb 25 in four months (read: 5 Hot Tech ETFs to Tap on Beaten Down Prices).
Additionally, Tesla’s (TSLA - Free Report) crazy rally, which powered most of the technology sector last year, has fizzled out. The stock has plunged 25% and lost about $200 billion in market value since Feb 8 when the electric-car firm said that it had spent $1.5 billion on bitcoin in a bid to boost returns on cash.
The sell-off has resulted in a spike in inverse or inverse leveraged ETFs. These products either create a short position or a leveraged short position in the underlying index through the use of swaps, options, future contracts and other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a short period of time, provided the trend remains a friend (see: all the Inverse Equity ETFs here).
However, these funds run the risk of huge losses compared with the traditional ones in fluctuating or seesawing markets. Further, their performance could vary significantly from the actual performance of the underlying index over the longer period compared to a shorter period (such as, weeks or months).
We have highlighted six leveraged inverse ETFs from the tech space that piled up double-digit gains over the past week though these involve a great deal of risk when compared to traditional products.
Daily Dow Jones Internet Bear 3X Shares (WEBS - Free Report) – Up 22.2%
This fund provides three times inverse play on the Internet corner of the broad technology sector by tracking the Dow Jones Internet Composite Index. It has attracted $3.6 million in its asset base and charges 95 bps in annual fees. The ETF sees an average daily volume of more than 28,000 shares.
ProShares UltraPro Short QQQ (SQQQ - Free Report) – Up 18.7%
This ETF provides three times inverse exposure to the daily performance of the Nasdaq-100 Index, charging 95 bps in annual fees. It has AUM of $1.7 billion and trades in average daily volume of about 56.8 million shares. SQQQ charges 95 bps per year.
Direxion Daily Cloud Computing Bear – Up 17.2%
This ETF targets the cloud computing segment offering two times inverse exposure to the performance of the Indxx USA Cloud Computing Index. With AUM of $17 million, CLDS has expense ratio of 0.95% and trades in average daily volume of 5,000 shares (read: Can Cloud Computing ETFs Keep Soaring?).
BMO REX MicroSectors FANG+ Index -3X Inverse Leveraged ETN (FNGD - Free Report) – Up 15.4%
This note seeks to offer three times inverse leveraged exposure to the NYSE FANG+ Index, which is an equal-dollar weighted index targeting the highly-traded growth stocks of next-generation technology and tech-enabled companies in the technology and consumer discretionary sectors. The ETN has accumulated $58.8 million in its asset base. It charges 95 bps in annual fees and trades in average daily volume of 2.4 million shares.
Direxion Daily Technology Bear 3x Shares (TECS - Free Report) - Up 14%
This product provides three times inverse exposure to the daily performance of the Technology Select Sector Index. It has amassed about $74.3 million in its asset base while charging 95 bps in fees per year from investors. Volume is good as it exchanges around 1.8 million shares a day on average.
Direxion Daily Semiconductor Bear 3x Shares (SOXS - Free Report) – Up 11.6%
This ETF provides three times inverse exposure to the PHLX Semiconductor Sector Index. It charges 0.95% in annual fees and trades in average daily volume of 3.6 million shares. It manages $76.3 million in its asset base (read: 4 ETFs to Invest in Shining Semiconductor Stocks).
Bottom Line
While the strategy is highly beneficial for short-term traders, it could lead to huge losses compared with traditional funds in fluctuating markets.
Still, for ETF investors, who are bearish on the tech sector for the near term, either of the above products could make an interesting choice. Clearly, these could be attractive for those with high-risk tolerance, and a belief that the “trend is the friend” in this specific corner of the investing world.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>