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5 Inverse ETFs That Gained More Than 25% in October
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The U.S. stock market wrapped up October with losses, marking the third-straight monthly decline for the first time since the onset of the COVID pandemic in March 2020. In fact, the S&P 500 and the Nasdaq Composite Index officially entered correction territory, indicating a 10% downturn from recent highs nearly three months ago. Higher bond yields and rising geopolitical tensions have been weighing on investor sentiments.
This has resulted in huge demand for inverse or inverse-leveraged ETFs as these fetch outsized returns on bearish sentiments in a short span. We have highlighted the five best-leveraged inverse ETFs that piled up handsome gains of more than 25% last month amid the market turmoil. These include MAX Auto Industry -3x Inverse Leveraged ETN (CARD - Free Report) , GraniteShares 1.5x Short TSLA Daily ETF (TSDD - Free Report) , Direxion Daily S&P Biotech Bear 3x Shares (LABD - Free Report) , Daily S&P 500 High Beta Bear 3X Shares (HIBS - Free Report) , and MicroSectors Travel -3x Inverse Leveraged ETN (FLYD - Free Report) .
The 10-year Treasury yield hit 5% — its highest level since 2007 — causing worries regarding the potential impact of higher debt costs on business development and overall economic growth. Investors are betting that the Fed would keep interest rates at their current high levels for longer amid concerns over inflation spiking again due to the high energy prices.
The raft of economic data showing the resilience of economic growth is also bolstering the case for persistently high rate expectations. Notably, the world's biggest economy emerged stronger than expected in the third quarter, defying all the challenges. The economy expanded at the fastest pace in nearly two years, with GDP rising 4.9% annually, more than twice the 2.1% growth in the second quarter. However, the breakneck pace of growth is expected to ease as higher long-term borrowing rates coupled with the Fed’s short-term rate hikes will cool down spending by businesses and consumers (read: 5 ETFs to Bet on Highest GDP Growth in Nearly 2 Years).
Further, the ongoing Israel-Hamas conflict has resulted in global uncertainties, leading to risk-off trade.
Inverse ETFs
These products either create a short position or a leveraged short position in the underlying index through swaps, options, futures 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 to 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).
MAX Auto Industry -3x Inverse Leveraged ETN (CARD - Free Report) – Up 77.9%
MAX Auto Industry -3x Inverse Leveraged ETN seeks to offer three times inverse exposure to the daily performance of the Prime Auto Industry Index. It charges 95 bps in annual fees and has accumulated $5.5 million in its asset base. MAX Auto Industry -3x Inverse Leveraged ETN trades in an average daily volume of about 1,000 shares (read: Best Inverse/Leveraged ETFs of Last Week).
GraniteShares 1.5x Short TSLA Daily ETF (TSDD - Free Report) – Up 34.4%
GraniteShares 1.5x Short TSLA Daily ETF offers 1.5 times (170%) inverse exposure to the daily percentage change of the common stock of Tesla (TSLA), charging 1.50% in annual fees. It has amassed $0.8 million in its asset base since its debut in late August. GraniteShares 1.5x Short TSLA Daily ETF trades in an average daily volume of 14,000 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 domestic companies from the biotechnology industry. Direxion Daily S&P Biotech Bear 3x Shares has amassed $68.5 million in its asset base and has an average daily volume of around 4 million shares. It charges investors 95 bps in annual fees.
Daily S&P 500 High Beta Bear 3X Shares (HIBS - Free Report) – Up 29.5%
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 $63.9 million in AUM and trades in an average daily volume of 164,000 shares. Daily S&P 500 High Beta Bear 3X Shares charges 95 bps in fees per year from investors.
MicroSectors Travel -3x Inverse Leveraged ETN offers three times inverse exposure to the performance of the MerQube MicroSectors U.S. Travel Index, which measures the performance of large, liquid U.S. listed and domiciled companies operating in the RBICS Sub Industries related to travel and tourism. It has gathered $6.2 million in its asset base.
MicroSectors Travel -3x Inverse Leveraged ETN charges 95 bps in fees per year and trades in an average daily volume of 31,000 shares.
Bottom Line
While the strategy is highly beneficial for short-term traders, it could lead to huge losses compared with 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. These could be attractive for those with high-risk tolerance and who believe that the “trend is the friend” in this specific corner of the investing world.
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5 Inverse ETFs That Gained More Than 25% in October
The U.S. stock market wrapped up October with losses, marking the third-straight monthly decline for the first time since the onset of the COVID pandemic in March 2020. In fact, the S&P 500 and the Nasdaq Composite Index officially entered correction territory, indicating a 10% downturn from recent highs nearly three months ago. Higher bond yields and rising geopolitical tensions have been weighing on investor sentiments.
This has resulted in huge demand for inverse or inverse-leveraged ETFs as these fetch outsized returns on bearish sentiments in a short span. We have highlighted the five best-leveraged inverse ETFs that piled up handsome gains of more than 25% last month amid the market turmoil. These include MAX Auto Industry -3x Inverse Leveraged ETN (CARD - Free Report) , GraniteShares 1.5x Short TSLA Daily ETF (TSDD - Free Report) , Direxion Daily S&P Biotech Bear 3x Shares (LABD - Free Report) , Daily S&P 500 High Beta Bear 3X Shares (HIBS - Free Report) , and MicroSectors Travel -3x Inverse Leveraged ETN (FLYD - Free Report) .
The 10-year Treasury yield hit 5% — its highest level since 2007 — causing worries regarding the potential impact of higher debt costs on business development and overall economic growth. Investors are betting that the Fed would keep interest rates at their current high levels for longer amid concerns over inflation spiking again due to the high energy prices.
The raft of economic data showing the resilience of economic growth is also bolstering the case for persistently high rate expectations. Notably, the world's biggest economy emerged stronger than expected in the third quarter, defying all the challenges. The economy expanded at the fastest pace in nearly two years, with GDP rising 4.9% annually, more than twice the 2.1% growth in the second quarter. However, the breakneck pace of growth is expected to ease as higher long-term borrowing rates coupled with the Fed’s short-term rate hikes will cool down spending by businesses and consumers (read: 5 ETFs to Bet on Highest GDP Growth in Nearly 2 Years).
Further, the ongoing Israel-Hamas conflict has resulted in global uncertainties, leading to risk-off trade.
Inverse ETFs
These products either create a short position or a leveraged short position in the underlying index through swaps, options, futures 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 to 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).
MAX Auto Industry -3x Inverse Leveraged ETN (CARD - Free Report) – Up 77.9%
MAX Auto Industry -3x Inverse Leveraged ETN seeks to offer three times inverse exposure to the daily performance of the Prime Auto Industry Index. It charges 95 bps in annual fees and has accumulated $5.5 million in its asset base. MAX Auto Industry -3x Inverse Leveraged ETN trades in an average daily volume of about 1,000 shares (read: Best Inverse/Leveraged ETFs of Last Week).
GraniteShares 1.5x Short TSLA Daily ETF (TSDD - Free Report) – Up 34.4%
GraniteShares 1.5x Short TSLA Daily ETF offers 1.5 times (170%) inverse exposure to the daily percentage change of the common stock of Tesla (TSLA), charging 1.50% in annual fees. It has amassed $0.8 million in its asset base since its debut in late August. GraniteShares 1.5x Short TSLA Daily ETF trades in an average daily volume of 14,000 shares.
Direxion Daily S&P Biotech Bear 3x Shares (LABD - Free Report) – Up 29.9%
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 domestic companies from the biotechnology industry. Direxion Daily S&P Biotech Bear 3x Shares has amassed $68.5 million in its asset base and has an average daily volume of around 4 million shares. It charges investors 95 bps in annual fees.
Daily S&P 500 High Beta Bear 3X Shares (HIBS - Free Report) – Up 29.5%
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 $63.9 million in AUM and trades in an average daily volume of 164,000 shares. Daily S&P 500 High Beta Bear 3X Shares charges 95 bps in fees per year from investors.
MicroSectors Travel -3x Inverse Leveraged ETN (FLYD - Free Report) – Up 26.6%
MicroSectors Travel -3x Inverse Leveraged ETN offers three times inverse exposure to the performance of the MerQube MicroSectors U.S. Travel Index, which measures the performance of large, liquid U.S. listed and domiciled companies operating in the RBICS Sub Industries related to travel and tourism. It has gathered $6.2 million in its asset base.
MicroSectors Travel -3x Inverse Leveraged ETN charges 95 bps in fees per year and trades in an average daily volume of 31,000 shares.
Bottom Line
While the strategy is highly beneficial for short-term traders, it could lead to huge losses compared with 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. These could be attractive for those with high-risk tolerance and who believe that the “trend is the friend” in this specific corner of the investing world.