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Stock markets across the globe saw wild swings last week on inflation concerns in the United States as well as the resurgence of COVID-19 cases in Asia. Notably, the MSCI World Equity Index, which includes 50 countries, capped its worst week since February.
Rising prices for almost everything from raw materials to food to shipping costs in the United States have sparked concerns that the Federal Reserve might tighten the policies earlier than expected though the central bank has signaled any rise in inflation as temporary. U.S. consumer prices climbed in April by the most since 2009 while producer prices also expanded the most in a decade. Higher prices tend to squeeze margins and erode corporate profits for the growth companies, which generally have higher valuations (read: Inflation Zooms to 13-Year High: 5 Solid TIPS ETF Picks).
Meanwhile, India, Japan and other parts of Southeast Asia are battling a fresh surge in cases and tightening restrictions, with relatively slow vaccine rollouts and delays in reopening economy.
All this 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 a longer period compared to a shorter period (such as, weeks or months).
We have highlighted five leveraged inverse ETFs that have piled up handsome gains over the past week though these involve a great deal of risk when compared to traditional products:
Direxion Daily FTSE China Bear 3x Shares (YANG - Free Report) – Up 11.3%
This fund targets the Chinese stock market and provides three times the inverse return of the FTSE China 50 Index. It has amassed $39.5 million in its asset base and sees a good trading volume of 371,000 shares a day on average. Expense ratio comes in at 0.95%.
BMO REX MicroSectors FANG+ Index -3X Inverse Leveraged ETN (FNGD - Free Report) – Up 10.8%
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 $68 million in its asset base. It charges 95 bps in annual fees and trades in an average daily volume of 5 million shares (read: 5 Beaten-Down Tech ETFs to Buy Now).
This ETF provides three times inverse exposure to the PHLX Semiconductor Sector Index. It charges 0.95% in annual fees and trades in an average daily volume of 8.6 million shares. The fund manages $88.1 million in its asset base.
This ETF offers three times inverse exposure to the MSCI Emerging Markets Index. It charges investors 95 bps in annual fees and has amassed about $21.5 million in its asset base. The fund trades in a good volumes of 255,000 shares a day on average (read: Wall Street Plunges: Make Profits From These Inverse ETFs).
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 $1.9 billion and trades in an average daily volume of about 78.1 million shares.
Bottom Line
While the strategy is highly beneficial for short-term traders, it could lead to huge losses compared with the traditional funds in fluctuating markets (see: all the Inverse Equity ETFs here).
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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5 Best Inverse Leveraged ETFs of Last Week
Stock markets across the globe saw wild swings last week on inflation concerns in the United States as well as the resurgence of COVID-19 cases in Asia. Notably, the MSCI World Equity Index, which includes 50 countries, capped its worst week since February.
Rising prices for almost everything from raw materials to food to shipping costs in the United States have sparked concerns that the Federal Reserve might tighten the policies earlier than expected though the central bank has signaled any rise in inflation as temporary. U.S. consumer prices climbed in April by the most since 2009 while producer prices also expanded the most in a decade. Higher prices tend to squeeze margins and erode corporate profits for the growth companies, which generally have higher valuations (read: Inflation Zooms to 13-Year High: 5 Solid TIPS ETF Picks).
Meanwhile, India, Japan and other parts of Southeast Asia are battling a fresh surge in cases and tightening restrictions, with relatively slow vaccine rollouts and delays in reopening economy.
All this 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 a longer period compared to a shorter period (such as, weeks or months).
We have highlighted five leveraged inverse ETFs that have piled up handsome gains over the past week though these involve a great deal of risk when compared to traditional products:
Direxion Daily FTSE China Bear 3x Shares (YANG - Free Report) – Up 11.3%
This fund targets the Chinese stock market and provides three times the inverse return of the FTSE China 50 Index. It has amassed $39.5 million in its asset base and sees a good trading volume of 371,000 shares a day on average. Expense ratio comes in at 0.95%.
BMO REX MicroSectors FANG+ Index -3X Inverse Leveraged ETN (FNGD - Free Report) – Up 10.8%
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 $68 million in its asset base. It charges 95 bps in annual fees and trades in an average daily volume of 5 million shares (read: 5 Beaten-Down Tech ETFs to Buy Now).
Direxion Daily Semiconductor Bear 3x Shares (SOXS - Free Report) – Up 10.3%
This ETF provides three times inverse exposure to the PHLX Semiconductor Sector Index. It charges 0.95% in annual fees and trades in an average daily volume of 8.6 million shares. The fund manages $88.1 million in its asset base.
Direxion Daily Emerging Markets Bear 3X Shares (EDZ - Free Report) – Up 9.8%
This ETF offers three times inverse exposure to the MSCI Emerging Markets Index. It charges investors 95 bps in annual fees and has amassed about $21.5 million in its asset base. The fund trades in a good volumes of 255,000 shares a day on average (read: Wall Street Plunges: Make Profits From These Inverse ETFs).
ProShares UltraPro Short QQQ (SQQQ - Free Report) – Up 6.2%
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 $1.9 billion and trades in an average daily volume of about 78.1 million shares.
Bottom Line
While the strategy is highly beneficial for short-term traders, it could lead to huge losses compared with the traditional funds in fluctuating markets (see: all the Inverse Equity ETFs here).
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.
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 >>