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Sell in May and Go Away with These Inverse ETFs

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One of the most popular, and well-known, investment sayings out there is ‘sell in May and go away’. This maxim stems from the historical underperformance of the market during the summer months (from May to the end of October) which suggests to many that investors would be well served by removing some of their chips from the table during this traditionally rough time for the market (See 3 ETFs Hitting All-Time Highs in Rocky Market).

This is particularly true when investors consider how stark the observed performance difference has been between the two periods over a very long time period. In fact, according to Mark Hulbert, the winter months outperform the summer months by 3.4% on average for the Dow since 1896. And given how volatile stocks have already been—not to mention the taper threat and midterm election uncertainty— a hedge could be a very interesting idea for some investors out there.

ETFs to hedge your portfolio

Fortunately, investors have a number of options that can assist in hedging a portfolio. There are actually close to 150 inverse or leveraged inverse products on the market today, so the number of choices may be paralyzing to some (see all the Inverse Equity ETFs here).

Investors can easily focus on the big market indexes and zero in on ‘regular’ inverse exposure that only offers to give you the opposite of an index’s performance for a single session. This strategy is a bit lower volatility than a leveraged ETF play, while it still looks to give investors a way to hedge out a bit of risk. Some of the most popular options in this sphere include this trio from ProShares:

  • Short S&P 500 ETF (SH - Free Report) - A great pick for broad short exposure to large caps, and a very well-traded fund as well.
  • Short Russell 2000 ETF (RWM - Free Report) – If investors think that small caps are headed for more pain, this short ETF is a great way to play more turmoil in this volatile space.
  • Short QQQ ETF (PSQ - Free Report) – Thanks to concerns over tech and biotechnology, PSQ could be an in-focus ETF to play a continued slump in technology names which many believe are overbought.

More information

For more on these inverse ETFs and some important points to remember regarding the use of daily resetting funds, make sure to watch our short video on the subject below:

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