Back to top

5 Inverse ETFs for A Shaky Market

Read MoreHide Full Article

After a smooth ride despite geopolitical tensions in the first half of the year, the U.S. stock market stumbled in recent sessions. The trend reversal came despite strong earnings growth, improving domestic economic fundamentals and an accelerating job market (read: 4 Ways to Play Earnings Growth with ETFs).

Notably, the S&P 500 plunged about 3.6% from the all-time high recorded on July 24 while Dow Jones tumbled 4.2% from the record high reached on July 17, suggesting a bigger drop in the days ahead. This is especially true, as the sentiment in equity markets is becoming more bearish of late due to heightened uncertainty and a slew of negative news.

Argentina default, deepening Russian sanctions, continued turmoil in Ukraine and Middle East, concerns over the health of the European economy, Portugal banking woes, slowdown in Chinese economy and a possible interest rate hike in U.S. sooner than expected sparked fears and shook the complacency in the stock market.

Apart from these, the International Monetary Fund (IMF) provided gloomy outlook for the U.S. last month. It projects the weakest economic growth since the Great Recession ended and cut its growth outlook from 2% to 1.7% for this year. This is the second downward revision in two months. The new forecast is well below last year’s growth of 1.9% and the Fed’s projection of 2.1% (read: Leveraged Volatility ETFs in Focus).

Further, the U.S. stocks still look expensive at current levels and small caps are experiencing a sharp downfall. All these worries are expected to keep the stock market volatile, which investors could ride out through inverse ETFs. While there are several options available in the space, we have highlighted five ETFs that are widely spread across a number of sectors and are not concentrated on a particular sector or industry.

These products have provided handsome returns over the trailing one-month period and are expected to do so, especially if the current trends persist in the months ahead.

ProShares Short Russell 2000 ETF ((RWM - Free Report) )

This fund seeks to deliver inverse exposure to the daily performance of the Russell 2000 Index. The fund has amassed $848.2 million and trades in heavy volume of 1.7 million shares per day. It charges 95 bps in fees per year and gained over 7% in the trailing one-month period.

ProShares Short MidCap400 ((MYY - Free Report) )

This ETF targets the mid cap segment of the broad U.S. equity market from the bearish perspective. This is done by tracking the inverse performance of the S&P MidCap 400 Index. The fund is less popular and less liquid with AUM of $138.9 million and average daily volume of roughly 146,000 shares. Expense ratio came in at 0.95%. MYY is up over 5% in the same period.

ProShares Short Dow 30 ETF ((DOG - Free Report) )

This product seeks to deliver inverse exposure to the daily performance of the Dow Jones Industrial Average, which includes the 30 blue chip companies. The fund has managed $296.9 million in its asset base while charging 95 bps in fees and expenses. Volume is moderate as it exchanges more than 332,000 shares per day on average. DOG gained nearly 3.6% over the past month (read: Bet on This Top-Ranked Large-Cap Growth ETF).  

ProShares Short S&P500 ETF ((SH - Free Report) )

This fund provides inverse exposure to the daily performance of the S&P 500 index. It is the most popular and liquid ETF in the inverse equity space with AUM of nearly $1.6 billion and average daily volume of around 3.4 million shares. The fund charges 90 bps in annual fees and added nearly 3% in the same period.

Direxion Daily Total Market Bear 1x Shares ETF ()

For a broad U.S. market play from a bearish perspective, TOTS seems an intriguing choice. This fund provides inverse exposure to the daily performance of the MSCI US Broad Market Index. The product is often overlooked by investors as depicted by its AUM of $1.1 million and average volume of under 5,000 shares per day. Compared to ProShares counterparts, the ETF charges a low annual fee of 65 bps. The fund was up 3.5% in the same period.

Bottom Line

As a caveat, investors should note that such products are suitable only for short-term traders as these are rebalanced on a daily basis (see: all the Inverse Equity ETFs here).

Still, for ETF investors who are bearish on the equity market for the near term, either of the above products could make an interesting choice. Clearly, a near-term short could be intriguing for those with high-risk tolerance, and a belief that the “trend is your friend” in this corner of the investing world.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

PRO-SHRT R2000 (RWM) - free report >>

PRO-SHRT MC400 (MYY) - free report >>

PRO-SHRT DOW30 (DOG) - free report >>

SPECIALTY - HEA (SH) - free report >>

More from Zacks ETF News And Commentary

You May Like