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June was marked with rounds of steep selling for U.S. stocks as concerns over heightened inflation and the prospects of a recession weighed heavily on investors’ risk appetite. Notably, the S&P 500 Index slipped into the bear market in mid-month and was unable to rebound to end the month.
This has resulted in huge demand for inverse or inverse-leveraged ETFs as these fetch outsized returns on bearish sentiments in a short span. Direxion Daily Semiconductor Bear 3x Shares (SOXS - Free Report) , MicroSectors U.S. Big Oil Index -3X Inverse Leveraged ETN (NRGD - Free Report) , MicroSectors Gold Miners -3X Inverse Leveraged ETN (GDXD - Free Report) , ETFMG Prime 2x Daily Inverse Junior Silver Miners ETF and Daily S&P 500 High Beta Bear 3X Shares (HIBS - Free Report) 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.
The S&P 500 wrapped up its worst month in decades, plunging about 8.4% in June. The sell-off aggravated when the Fed raised interest rates by 75 bps last month — the biggest increase since 1994 — and signaled continued tightening ahead, which could further weigh on stocks. Fed Chair Jerome Powell said that another hike of 50 or 75 bps at the next meeting in July is likely. An increase in interest rates means higher loan rates for consumers and businesses, including mortgages, credit cards and auto loans that will likely cut consumer spending and hurt economic growth (read: TTop & Flop Zones of First Half 2022 and Their ETF).
Additionally, rounds of data suggest a slowdown in economic activity in the key sectors. Mortgage rates reached their highest levels in more than 13 years, while retail sales registered a bigger-than-expected drop in May as record gasoline prices prompted households to cut back on spending. Consumer confidence also dropped in June to the lowest in more than a year.
As the global economy is struggling with skyrocketing inflation and low growth, the World Bank has warned of a recession. The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are curtailing growth.
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 $246.4 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.
MicroSectors U.S. Big Oil Index -3X Inverse Leveraged ETN (NRGD - Free Report) – Up 62.8%
MicroSectors U.S. Big Oil Index -3X Inverse Leveraged ETN offers three times inverse exposure to the Solactive MicroSectors U.S. Big Oil Index, which is equal-dollar weighted and provides exposure to the 10 largest U.S. energy and oil companies (read: Energy ETFs Scaling 52-Week Highs: Will This Continue?).
MicroSectors U.S. Big Oil Index -3X Inverse Leveraged ETN has accumulated $74.9 million in its asset base. It charges 95 bps in annual fees and trades in an average daily volume of about 228,000 shares.
MicroSectors Gold Miners -3X Inverse Leveraged ETN seeks to offer three times inverse leveraged exposure to the S-Network MicroSectors Gold Miners Index.
MicroSectors Gold Miners -3X Inverse Leveraged ETN has accumulated $16.4 million in its asset base and trades in an average daily volume of 108,000 shares. It charges 95 bps in annual fees.
ETFMG Prime 2x Daily Inverse Junior Silver Miners ETF – Up 51%
ETFMG Prime 2x Daily Inverse Junior Silver Miners ETF creates two times inverse exposure to the Prime Junior Silver Miners and Explorers Index, which offers exposure to the silver mining exploration and production industry. It charges investors an annual fee of 95 bps and has accumulated $0.1 million in its asset base since its debut in June last year.
Volume is meager as it exchanges about 13,000 shares in hand per day on average.
Daily S&P 500 High Beta Bear 3X Shares (HIBS - Free Report) – Up 44.2%
Daily S&P 500 High Beta Bear 3X Shares offers three times inverse exposure to the performance of the S&P 500 High Beta Index. It has gathered $51.7 million in AUM and trades in an average daily volume 1 million shares.
Daily S&P 500 High Beta Bear 3X Shares charges 95 bps in fees per year from investors.
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 a 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-Performing Inverse ETFs of a Brutal June
June was marked with rounds of steep selling for U.S. stocks as concerns over heightened inflation and the prospects of a recession weighed heavily on investors’ risk appetite. Notably, the S&P 500 Index slipped into the bear market in mid-month and was unable to rebound to end the month.
This has resulted in huge demand for inverse or inverse-leveraged ETFs as these fetch outsized returns on bearish sentiments in a short span. Direxion Daily Semiconductor Bear 3x Shares (SOXS - Free Report) , MicroSectors U.S. Big Oil Index -3X Inverse Leveraged ETN (NRGD - Free Report) , MicroSectors Gold Miners -3X Inverse Leveraged ETN (GDXD - Free Report) , ETFMG Prime 2x Daily Inverse Junior Silver Miners ETF and Daily S&P 500 High Beta Bear 3X Shares (HIBS - Free Report) 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.
The S&P 500 wrapped up its worst month in decades, plunging about 8.4% in June. The sell-off aggravated when the Fed raised interest rates by 75 bps last month — the biggest increase since 1994 — and signaled continued tightening ahead, which could further weigh on stocks. Fed Chair Jerome Powell said that another hike of 50 or 75 bps at the next meeting in July is likely. An increase in interest rates means higher loan rates for consumers and businesses, including mortgages, credit cards and auto loans that will likely cut consumer spending and hurt economic growth (read: TTop & Flop Zones of First Half 2022 and Their ETF).
Additionally, rounds of data suggest a slowdown in economic activity in the key sectors. Mortgage rates reached their highest levels in more than 13 years, while retail sales registered a bigger-than-expected drop in May as record gasoline prices prompted households to cut back on spending. Consumer confidence also dropped in June to the lowest in more than a year.
As the global economy is struggling with skyrocketing inflation and low growth, the World Bank has warned of a recession. The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are curtailing growth.
Direxion Daily Semiconductor Bear 3x Shares (SOXS - Free Report) – Up 64.7%
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 $246.4 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.
MicroSectors U.S. Big Oil Index -3X Inverse Leveraged ETN (NRGD - Free Report) – Up 62.8%
MicroSectors U.S. Big Oil Index -3X Inverse Leveraged ETN offers three times inverse exposure to the Solactive MicroSectors U.S. Big Oil Index, which is equal-dollar weighted and provides exposure to the 10 largest U.S. energy and oil companies (read: Energy ETFs Scaling 52-Week Highs: Will This Continue?).
MicroSectors U.S. Big Oil Index -3X Inverse Leveraged ETN has accumulated $74.9 million in its asset base. It charges 95 bps in annual fees and trades in an average daily volume of about 228,000 shares.
MicroSectors Gold Miners -3X Inverse Leveraged ETN (GDXD - Free Report) – Up 54.2%
MicroSectors Gold Miners -3X Inverse Leveraged ETN seeks to offer three times inverse leveraged exposure to the S-Network MicroSectors Gold Miners Index.
MicroSectors Gold Miners -3X Inverse Leveraged ETN has accumulated $16.4 million in its asset base and trades in an average daily volume of 108,000 shares. It charges 95 bps in annual fees.
ETFMG Prime 2x Daily Inverse Junior Silver Miners ETF – Up 51%
ETFMG Prime 2x Daily Inverse Junior Silver Miners ETF creates two times inverse exposure to the Prime Junior Silver Miners and Explorers Index, which offers exposure to the silver mining exploration and production industry. It charges investors an annual fee of 95 bps and has accumulated $0.1 million in its asset base since its debut in June last year.
Volume is meager as it exchanges about 13,000 shares in hand per day on average.
Daily S&P 500 High Beta Bear 3X Shares (HIBS - Free Report) – Up 44.2%
Daily S&P 500 High Beta Bear 3X Shares offers three times inverse exposure to the performance of the S&P 500 High Beta Index. It has gathered $51.7 million in AUM and trades in an average daily volume 1 million shares.
Daily S&P 500 High Beta Bear 3X Shares charges 95 bps in fees per year from investors.
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 a high-risk tolerance and a belief that the “trend is the friend” in this specific corner of the investing world.