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September, which is known as a weak month for stock markets, is turning out rocky this year too. This is especially true as Wall Street registered the largest daily loss in months on the Sep 20 trading session after three consecutive weekly declines.
The S&P 500 dropped 1.7% for its worst day since May 12 while the Dow Jones Industrial Average plunged 1.8% for its biggest one-day drop since Jul 19. The Nasdaq Composite Index underperformed, plummeting 2.2% on the day led by declines in the five biggest tech titans — including Microsoft (MSFT - Free Report) , Google-owner Alphabet (GOOGL - Free Report) , Amazon.com (AMZN - Free Report) , Apple (AAPL - Free Report) , and Facebook . These companies collectively shed more than $500 billion since the Nasdaq 100 peaked on Sep 7.
The slump came following concerns over the financial contagion of the potential failure of China’s Evergrande property group, which is under a debt burden of $150 million in bond payments later this week. Ongoing debates over the debt limit in Washington and a looming Federal Reserve policy meeting this week has made investors’ jittery.
Additionally, concerns over accelerating coronavirus infections, renewed inflation fears, signs of a slowdown in China and potential for high corporate tax rates have been playing foul on the stock market lately (read: September Lull Lingers: 5 Best Inverse/Leveraged ETFs of Last Week).
The broad market sell-off has resulted in a spike for 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.
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 the six best leveraged inverse ETFs of the day that piled up handsome gains on the market meltdown, though these involve a great deal of risk when compared to the traditional products (see: all the Inverse Equity ETFs here).
MicroSectors U.S. Big Oil Index -3X Inverse Leveraged ETN (NRGD - Free Report) – Up 11.2%
NRGD offers three times inverse exposure to the Solactive MicroSectors U.S. Big Oil Index. The ETN has accumulated $20 million in its asset base. It charges 95 bps in annual fees and trades in an average daily volume of about 446,000 shares.
This product seeks to deliver three times the inverse daily performance of the S&P Biotechnology Select Industry Index. The fund has amassed $67.9 million in its asset base and has an average daily volume of about 2.7 million shares. It charges investors 95 bps in annual fees and expenses (read: Tap the Red Hot Biotech Sector With These 2 Leveraged ETFs).
BMO REX MicroSectors FANG+ Index -3X Inverse Leveraged ETN (FNGD - Free Report) – Up 9.4%
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 $53.2 million in its asset base. It charges 95 bps in annual fees and trades in an average daily volume of 5.6 million shares.
MicroSectors U.S. Big Banks Index -3X Inverse Leveraged ETN (BNKD - Free Report) – Up 8.2%
BNKD seeks to offer three times leveraged exposure to the Solactive MicroSectors U.S. Big Banks Index. The ETN has accumulated $5.5 million in its asset base. It charges 95 bps in annual fees and trades in an average daily volume of about 39,000 shares.
This ETF provides three times inverse exposure to the ICE Semiconductor Index. It charges 0.95% in annual fees and trades in an average daily volume of 9.5 million shares. The fund manages $167.2 million in its asset base.
Daily S&P 500 High Beta Bear 3X Shares (HIBS - Free Report) – Up 7.2%
This ETF offers three times inverse exposure of the performance of the S&P 500 High Beta Index. It has gathered $26.5 million in AUM and trades in an average daily volume of 273,000 shares. The fund charges 95 bps in fees per year from its investors (read: 5 Low-Beta ETFs to Invest in Uncertain Markets).
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 equities 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 Gain on Broad Market Sell-Off
September, which is known as a weak month for stock markets, is turning out rocky this year too. This is especially true as Wall Street registered the largest daily loss in months on the Sep 20 trading session after three consecutive weekly declines.
The S&P 500 dropped 1.7% for its worst day since May 12 while the Dow Jones Industrial Average plunged 1.8% for its biggest one-day drop since Jul 19. The Nasdaq Composite Index underperformed, plummeting 2.2% on the day led by declines in the five biggest tech titans — including Microsoft (MSFT - Free Report) , Google-owner Alphabet (GOOGL - Free Report) , Amazon.com (AMZN - Free Report) , Apple (AAPL - Free Report) , and Facebook . These companies collectively shed more than $500 billion since the Nasdaq 100 peaked on Sep 7.
The slump came following concerns over the financial contagion of the potential failure of China’s Evergrande property group, which is under a debt burden of $150 million in bond payments later this week. Ongoing debates over the debt limit in Washington and a looming Federal Reserve policy meeting this week has made investors’ jittery.
Additionally, concerns over accelerating coronavirus infections, renewed inflation fears, signs of a slowdown in China and potential for high corporate tax rates have been playing foul on the stock market lately (read: September Lull Lingers: 5 Best Inverse/Leveraged ETFs of Last Week).
The broad market sell-off has resulted in a spike for 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.
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 the six best leveraged inverse ETFs of the day that piled up handsome gains on the market meltdown, though these involve a great deal of risk when compared to the traditional products (see: all the Inverse Equity ETFs here).
MicroSectors U.S. Big Oil Index -3X Inverse Leveraged ETN (NRGD - Free Report) – Up 11.2%
NRGD offers three times inverse exposure to the Solactive MicroSectors U.S. Big Oil Index. The ETN has accumulated $20 million in its asset base. It charges 95 bps in annual fees and trades in an average daily volume of about 446,000 shares.
Direxion Daily S&P Biotech Bear 3x Shares (LABD - Free Report) – Up 10%
This product seeks to deliver three times the inverse daily performance of the S&P Biotechnology Select Industry Index. The fund has amassed $67.9 million in its asset base and has an average daily volume of about 2.7 million shares. It charges investors 95 bps in annual fees and expenses (read: Tap the Red Hot Biotech Sector With These 2 Leveraged ETFs).
BMO REX MicroSectors FANG+ Index -3X Inverse Leveraged ETN (FNGD - Free Report) – Up 9.4%
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 $53.2 million in its asset base. It charges 95 bps in annual fees and trades in an average daily volume of 5.6 million shares.
MicroSectors U.S. Big Banks Index -3X Inverse Leveraged ETN (BNKD - Free Report) – Up 8.2%
BNKD seeks to offer three times leveraged exposure to the Solactive MicroSectors U.S. Big Banks Index. The ETN has accumulated $5.5 million in its asset base. It charges 95 bps in annual fees and trades in an average daily volume of about 39,000 shares.
Direxion Daily Semiconductor Bear 3x Shares (SOXS - Free Report) – Up 7.5%
This ETF provides three times inverse exposure to the ICE Semiconductor Index. It charges 0.95% in annual fees and trades in an average daily volume of 9.5 million shares. The fund manages $167.2 million in its asset base.
Daily S&P 500 High Beta Bear 3X Shares (HIBS - Free Report) – Up 7.2%
This ETF offers three times inverse exposure of the performance of the S&P 500 High Beta Index. It has gathered $26.5 million in AUM and trades in an average daily volume of 273,000 shares. The fund charges 95 bps in fees per year from its investors (read: 5 Low-Beta ETFs to Invest in Uncertain Markets).
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 equities 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.