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April was the worst-ever month for Wall Street. This is especially true as the Dow Jones Industrial Average and the S&P 500 index saw their worst April performances since 1970 and their worst months since March 2020. Meanwhile, the Nasdaq Composite Index logged in the biggest monthly decline since October 2008 (read: Should You Short Nasdaq ETFs as Index Hits New Low for 2022?).
The market sell-off has resulted in higher demand for inverse or inverse-leveraged ETFs as these fetch outsized returns on bearish sentiments in a short span. BMO REX MicroSectors FANG+ Index -3X Inverse Leveraged ETN (FNGD - Free Report) , Direxion Daily Semiconductor Bear 3x Shares (SOXS - Free Report) , Daily Dow Jones Internet Bear 3X Shares (WEBS - Free Report) , MicroSectors U.S. Big Banks Index -3X Inverse Leveraged ETN (BNKD - Free Report) and Direxion Daily S&P Biotech Bear 3x Shares (LABD - Free Report) outperformed last month and might continue their strong performance if sentiments remain the same.
Inverse and inverse-leveraged ETFs either create an inverse short position or a leveraged inverse short position in the underlying index through the use of swaps, options, futures contracts and other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a very short time, provided the trend prevails.
Market Trends
The tech titans have been the largest victim of the market plunge. In fact, soaring yields and a hawkish commentary from the Federal Reserve wiped out more than $1.8 trillion in value from the tech stocks in April alone. This is because higher interest rates reduce the present value of future earnings, weighing especially on shares of fast-growing companies.
Additionally, investors have been betting on the steepest Fed tightening in almost three decades that has been hurting consumers and business. The ongoing Russia-Ukraine war and the strict lockdown measures in China to fight COVID-19 have sparked worries over global economic expansion that continued to weigh on investors’ sentiment. Notably, U.S. economy shrank for the first time since the outbreak of the pandemic. GDP dropped 1.4% annually in the first quarter of 2022, marking a sharp reversal from 6.9% annual growth in the fourth quarter.
Further, the earnings season has not been impressive so far.
BMO REX MicroSectors FANG+ Index -3X Inverse Leveraged ETN (FNGD - Free Report) – Up 79.9%
BMO REX MicroSectors FANG+ Index -3X Inverse Leveraged ETN seeks to offer three times inverse leveraged exposure to the NYSE FANG+ Index, 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.
BMO REX MicroSectors FANG+ Index -3X Inverse Leveraged ETN has accumulated $120.8 million in its asset base. It charges 95 bps in annual fees and trades in an average daily volume of 715,000 shares.
Direxion Daily Semiconductor Bear 3x Shares targets the semiconductor corner of the technology sector with three times inverse leveraged exposure to the ICE Semiconductor Index.
Direxion Daily Semiconductor Bear 3x Shares has amassed about $228.7 million in its asset base while charging 95 bps in fees per year. Volume is good as it exchanges 66.7 million shares per day on average (read: 5 Inverse ETFs Enjoying a Rally This Year).
Daily Dow Jones Internet Bear 3X Shares (WEBS - Free Report) – Up 63.9%
Daily Dow Jones Internet Bear 3X Shares provides a three times inverse play on the Internet corner of the broad technology sector by tracking the Dow Jones Internet Composite Index.
Daily Dow Jones Internet Bear 3X Shares has attracted $30.5 million in its asset base and charges 95 bps in annual fees. The ETF sees an average daily volume of about 229,000 shares.
MicroSectors U.S. Big Banks Index -3X Inverse Leveraged ETN (BNKD - Free Report) – Up 63.4%
MicroSectors U.S. Big Banks Index -3X Inverse Leveraged ETN seeks to offer three times inverse leveraged exposure to the Solactive MicroSectors U.S. Big Banks Index. The benchmark includes 10 U.S. stocks in the banking sector with the largest free-float market capitalization in equal weights.
MicroSectors U.S. Big Banks Index -3X Inverse Leveraged ETN has accumulated $14.1 million in its asset base. It charges 95 bps in annual fees and trades in an average daily volume of about 73,000 shares.
Direxion Daily S&P Biotech Bear 3x Shares seeks to deliver three times the inverse daily performance of the S&P Biotechnology Select Industry Index, which includes the domestic companies from the biotechnology industry (read: Healthcare ETFs Outperform Amid Rising Uncertainties).
Direxion Daily S&P Biotech Bear 3x Shares has amassed $61.7 million in its asset base and has an average daily volume of around 4 million shares. LABD charges investors 94 bps in annual fees.
Bottom Line
While the strategy is highly beneficial for short-term traders, it could lead to huge losses compared with traditional funds in fluctuating or seesawing markets. Further, their performances could vary significantly from the actual performance of their underlying index over a longer period compared to a shorter period (such as weeks or months) due to their compounding effect (see: all the Inverse Equity ETFs here).
Still, for ETF investors bearish on equities for the near term, either of the above products could make an interesting choice. Clearly, these could be intriguing 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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5 Inverse ETFs That Are Up More Than 60% in April
April was the worst-ever month for Wall Street. This is especially true as the Dow Jones Industrial Average and the S&P 500 index saw their worst April performances since 1970 and their worst months since March 2020. Meanwhile, the Nasdaq Composite Index logged in the biggest monthly decline since October 2008 (read: Should You Short Nasdaq ETFs as Index Hits New Low for 2022?).
The market sell-off has resulted in higher demand for inverse or inverse-leveraged ETFs as these fetch outsized returns on bearish sentiments in a short span. BMO REX MicroSectors FANG+ Index -3X Inverse Leveraged ETN (FNGD - Free Report) , Direxion Daily Semiconductor Bear 3x Shares (SOXS - Free Report) , Daily Dow Jones Internet Bear 3X Shares (WEBS - Free Report) , MicroSectors U.S. Big Banks Index -3X Inverse Leveraged ETN (BNKD - Free Report) and Direxion Daily S&P Biotech Bear 3x Shares (LABD - Free Report) outperformed last month and might continue their strong performance if sentiments remain the same.
Inverse and inverse-leveraged ETFs either create an inverse short position or a leveraged inverse short position in the underlying index through the use of swaps, options, futures contracts and other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a very short time, provided the trend prevails.
Market Trends
The tech titans have been the largest victim of the market plunge. In fact, soaring yields and a hawkish commentary from the Federal Reserve wiped out more than $1.8 trillion in value from the tech stocks in April alone. This is because higher interest rates reduce the present value of future earnings, weighing especially on shares of fast-growing companies.
Additionally, investors have been betting on the steepest Fed tightening in almost three decades that has been hurting consumers and business. The ongoing Russia-Ukraine war and the strict lockdown measures in China to fight COVID-19 have sparked worries over global economic expansion that continued to weigh on investors’ sentiment. Notably, U.S. economy shrank for the first time since the outbreak of the pandemic. GDP dropped 1.4% annually in the first quarter of 2022, marking a sharp reversal from 6.9% annual growth in the fourth quarter.
Further, the earnings season has not been impressive so far.
BMO REX MicroSectors FANG+ Index -3X Inverse Leveraged ETN (FNGD - Free Report) – Up 79.9%
BMO REX MicroSectors FANG+ Index -3X Inverse Leveraged ETN seeks to offer three times inverse leveraged exposure to the NYSE FANG+ Index, 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.
BMO REX MicroSectors FANG+ Index -3X Inverse Leveraged ETN has accumulated $120.8 million in its asset base. It charges 95 bps in annual fees and trades in an average daily volume of 715,000 shares.
Direxion Daily Semiconductor Bear 3x Shares (SOXS - Free Report) – Up 64.1%
Direxion Daily Semiconductor Bear 3x Shares targets the semiconductor corner of the technology sector with three times inverse leveraged exposure to the ICE Semiconductor Index.
Direxion Daily Semiconductor Bear 3x Shares has amassed about $228.7 million in its asset base while charging 95 bps in fees per year. Volume is good as it exchanges 66.7 million shares per day on average (read: 5 Inverse ETFs Enjoying a Rally This Year).
Daily Dow Jones Internet Bear 3X Shares (WEBS - Free Report) – Up 63.9%
Daily Dow Jones Internet Bear 3X Shares provides a three times inverse play on the Internet corner of the broad technology sector by tracking the Dow Jones Internet Composite Index.
Daily Dow Jones Internet Bear 3X Shares has attracted $30.5 million in its asset base and charges 95 bps in annual fees. The ETF sees an average daily volume of about 229,000 shares.
MicroSectors U.S. Big Banks Index -3X Inverse Leveraged ETN (BNKD - Free Report) – Up 63.4%
MicroSectors U.S. Big Banks Index -3X Inverse Leveraged ETN seeks to offer three times inverse leveraged exposure to the Solactive MicroSectors U.S. Big Banks Index. The benchmark includes 10 U.S. stocks in the banking sector with the largest free-float market
capitalization in equal weights.
MicroSectors U.S. Big Banks Index -3X Inverse Leveraged ETN has accumulated $14.1 million in its asset base. It charges 95 bps in annual fees and trades in an average daily volume of about 73,000 shares.
Direxion Daily S&P Biotech Bear 3x Shares (LABD - Free Report) – Up 59.5%
Direxion Daily S&P Biotech Bear 3x Shares seeks to deliver three times the inverse daily performance of the S&P Biotechnology Select Industry Index, which includes the domestic companies from the biotechnology industry (read: Healthcare ETFs Outperform Amid Rising Uncertainties).
Direxion Daily S&P Biotech Bear 3x Shares has amassed $61.7 million in its asset base and has an average daily volume of around 4 million shares. LABD charges investors 94 bps in annual fees.
Bottom Line
While the strategy is highly beneficial for short-term traders, it could lead to huge losses compared with traditional funds in fluctuating or seesawing markets. Further, their performances could vary significantly from the actual performance of their underlying index over a longer period compared to a shorter period (such as weeks or months) due to their compounding effect (see: all the Inverse Equity ETFs here).
Still, for ETF investors bearish on equities for the near term, either of the above products could make an interesting choice. Clearly, these could be intriguing for those with high risk tolerance, and a belief that the “trend is the friend” in this specific corner of the investing world.