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The U.S. stock market started to falter after a marvelous rally in 2023. This can be attributed to a decline in big tech and a rise in yields. Investors’ enthusiasm over the Fed rate cuts also faded, reflecting concerns about the skyrocketing market after a sharp rally over the past two months.
This 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 five leveraged inverse ETFs that piled up handsome gains in the initial trading days of 2024. These are Direxion Daily Semiconductor Bear 3x Shares (SOXS - Free Report) , MAX Auto Industry -3x Inverse Leveraged ETN (CARD - Free Report) , Daily S&P 500 High Beta Bear 3X Shares (HIBS - Free Report) , MicroSectors Gold Miners -3X Inverse Leveraged ETN (GDXD - Free Report) and MicroSectors Travel -3x Inverse Leveraged ETN (FLYD - Free Report) .
The 10-year Treasury yields climbed to above 4%. The latest Fed minutes show that it wouldn’t cut rates as aggressively as expected for this year. This suggests an uncertain path toward interest rate cuts and reflects a growing sense that inflation is under control. There is also a rising concern about the risks that “overly restrictive” monetary policy may pose to the economy.
iPhone maker Apple (AAPL) declined after Barclays downgraded the rating on the stock, citing concerns about demand for new iPhones. Semiconductor stocks also saw rough trading after Dutch semiconductor manufacturing equipment maker ASML Holdings (ASML - Free Report) said it would restrict shipments of some technology to China at the Dutch government’s behest (read: Value ETFs Reach New 52-Week High to Start 2024).
The disappointing manufacturing data also added to the chaos. The U.S. manufacturing sector slipped further into contraction during December, according to the latest PMI data from S&P Global, as output declined and the downturn in new orders gathered pace.
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).
Direxion Daily Semiconductor Bear 3x Shares targets the semiconductor corner of the technology sector with three times inverse leveraged exposure to the NYSE Semiconductor Index.
Direxion Daily Semiconductor Bear 3x Shares has amassed about $973.9 million in its asset base while charging 89 bps in fees per year. Volume is good as it exchanges 66.7 million shares per day on average (read: 10 Most Actively Traded ETFs of Q4).
MAX Auto Industry -3x Inverse Leveraged ETN (CARD - Free Report) – Up 16.4%
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 $2.6 million in its asset base. MAX Auto Industry -3x Inverse Leveraged ETN trades in an average daily volume of about 1,000 shares.
Daily S&P 500 High Beta Bear 3X Shares (HIBS - Free Report) – Up 13.7%
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 $43.4 million in its asset base and trades in an average daily volume of 153,000 shares.
Daily S&P 500 High Beta Bear 3X Shares charges 95 bps in fees per year from investors.
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 $42.4 million in its asset base and trades in an average daily volume of 2 million shares. It charges 95 bps in annual fees.
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 $2.7 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 44,000 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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Inverse ETFs Soar at the Start of 2024
The U.S. stock market started to falter after a marvelous rally in 2023. This can be attributed to a decline in big tech and a rise in yields. Investors’ enthusiasm over the Fed rate cuts also faded, reflecting concerns about the skyrocketing market after a sharp rally over the past two months.
This 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 five leveraged inverse ETFs that piled up handsome gains in the initial trading days of 2024. These are Direxion Daily Semiconductor Bear 3x Shares (SOXS - Free Report) , MAX Auto Industry -3x Inverse Leveraged ETN (CARD - Free Report) , Daily S&P 500 High Beta Bear 3X Shares (HIBS - Free Report) , MicroSectors Gold Miners -3X Inverse Leveraged ETN (GDXD - Free Report) and MicroSectors Travel -3x Inverse Leveraged ETN (FLYD - Free Report) .
The 10-year Treasury yields climbed to above 4%. The latest Fed minutes show that it wouldn’t cut rates as aggressively as expected for this year. This suggests an uncertain path toward interest rate cuts and reflects a growing sense that inflation is under control. There is also a rising concern about the risks that “overly restrictive” monetary policy may pose to the economy.
iPhone maker Apple (AAPL) declined after Barclays downgraded the rating on the stock, citing concerns about demand for new iPhones. Semiconductor stocks also saw rough trading after Dutch semiconductor manufacturing equipment maker ASML Holdings (ASML - Free Report) said it would restrict shipments of some technology to China at the Dutch government’s behest (read: Value ETFs Reach New 52-Week High to Start 2024).
The disappointing manufacturing data also added to the chaos. The U.S. manufacturing sector slipped further into contraction during December, according to the latest PMI data from S&P Global, as output declined and the downturn in new orders gathered pace.
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).
Direxion Daily Semiconductor Bear 3x Shares (SOXS - Free Report) – Up 17.7%
Direxion Daily Semiconductor Bear 3x Shares targets the semiconductor corner of the technology sector with three times inverse leveraged exposure to the NYSE Semiconductor Index.
Direxion Daily Semiconductor Bear 3x Shares has amassed about $973.9 million in its asset base while charging 89 bps in fees per year. Volume is good as it exchanges 66.7 million shares per day on average (read: 10 Most Actively Traded ETFs of Q4).
MAX Auto Industry -3x Inverse Leveraged ETN (CARD - Free Report) – Up 16.4%
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 $2.6 million in its asset base. MAX Auto Industry -3x Inverse Leveraged ETN trades in an average daily volume of about 1,000 shares.
Daily S&P 500 High Beta Bear 3X Shares (HIBS - Free Report) – Up 13.7%
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 $43.4 million in its asset base and trades in an average daily volume of 153,000 shares.
Daily S&P 500 High Beta Bear 3X Shares charges 95 bps in fees per year from investors.
MicroSectors Gold Miners -3X Inverse Leveraged ETN (GDXD - Free Report) – Up 13.3%
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 $42.4 million in its asset base and trades in an average daily volume of 2 million shares. It charges 95 bps in annual fees.
MicroSectors Travel -3x Inverse Leveraged ETN (FLYD - Free Report) – Up 12.3%
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 $2.7 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 44,000 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.