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5 Inverse Leveraged ETFs Off to a Strong Start in September

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The start of September has been scary for the Wall Street with all the major indices down. The Nasdaq Composite Index saw the worst start to September since 2008, declining 2.3%. The S&P 500 shed 0.8% while Dow Jones lost 0.4%.

The sluggish performances were attributed to the steep sell-off in the tech sector and Trump’s new tariff threat. Donald Trump threatened to impose tariffs on additional $267 billion in addition to the proposed 25% duty to be levied on $200 billion of Chinese goods. The move will escalate trade tensions between the United States and China. Additionally, Bloomberg News reports that the United States and Canada will likely end up with a no trade deal this week (read: Tech ETFs Tumble: Should You Buy the Dip?).

Additionally, the ongoing troubles in emerging markets, chances of auto tariffs on other countries, Iran oil sanctions, another budget deadline and the mid-term election in November add to the woes. Further, September is historically the worst month of the year for the stock market and even worse in the mid-term election years.

The myriad woes have resulted in huge demand for inverse or leveraged inverse ETFs for investors seeking to make big gains in a short span. These products either create an inverse (opposite) position or leveraged (2x or 3x) inverse position in the underlying index through the use of swaps, options, future contracts and other financial instruments.

In fact, many products have generated double-digit returns since the start of September though these involve a great deal of risk when compared to traditional products. Below, we have highlighted five such ETFs that crushed the market over the past five days and should continue doing so at least for the near term if the same trends persist.

BMO REX MicroSectors FANG+ Index -3X Inverse Leveraged ETN (FNGD - Free Report) – Up 19%

This note seeks to offer three times (3x) 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 debuted in late January and has accumulated $27.7 million since then. It charges 95 bps in annual fees and trades in average daily volume of 48,000 shares (read: Leveraged FAANG ETFs: What Investors Need to Know).

Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 3X Shares (DRIP - Free Report) – Up 17.5%

This fund seeks three times inverse exposure of the performance of the S&P Oil & Gas Exploration & Production Select Industry Index. DRIP has accumulated $62.1 million in its asset base and trades in a solid volume of around 4.7 million shares a day on average. The fund charges 95 bps in annual fees.

Direxion Daily Gold Miners Index Bear 3x Shares (DUST - Free Report) – Up 16%

DUST seeks to deliver three times the inverse daily performance of the NYSE Arca Gold Miners Index. The fund has amassed $162.1 million in its asset base and trades in heavy average volume of more than 3.4 million shares. It charges investors 94 bps in annual fees and expenses (read: Gold in Longest 4-Year Losing Streak: Go Short with ETFs).

Direxion Daily Natural Gas Related Bear 3X Shares (GASX - Free Report) – Up 16%

This product provides three times inverse exposure to the ISE-Revere Natural Gas Index. It has amassed $5.9 million in its asset base and trades in light volume of 35,000 shares a day on average. The ETF charges 95 bps in fees per year.

Direxion Daily S&P Biotech Bear 3x Shares (LABD - Free Report) – Up 11.5%

This product seeks to deliver three times the inverse daily performance of the S&P Biotechnology Select Industry Index. The fund has amassed $80.8 million in its asset base and average daily volume of more than 1.3 million shares. It charges investors 95 bps in annual fees and expenses.

Bottom Line

As a caveat, investors should note that such products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing – when combined with leverage – may force these products to deviate significantly from the expected long-term performance figures (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 the friend” in this corner of the investing world.

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