Trade jitters played foul on the Wall Street last week, cooling down the momentum of the market bulls. Trump implemented the previously delayed tariff increase on $200 billion of Chinese goods effective May 10 midnight. Tariff was hiked to 25% from 10% on a range of Chinese goods, including office furniture, handbags and frozen catfish fillets (read:
Value Investing Set to Shine: 5 Top-Ranked ETFs & Stocks). Investors are now concerned that the new tariff will raise prices for consumers and slow down the global economy. As a result, the Wall Street saw the biggest weekly drop of this year, with Dow Jones and S&P 500 falling 2.2% each and Nasdaq dropping 3%. The rough trading is likely to continue at least in the near term. This is because the latest trade talks between the United States and China failed without a deal and China has threatened to retaliate. However, no specifics have been provided. Additionally, Trump is looking to impose additional 25% tariffs on further $325 billion of Chinese goods "shortly." If this tariff is also levied, all products imported to the United States from China will face some sort of tariff. VIDEO
The trade fight has raised the appeal for inverse leveraged ETFs as investors can seek higher returns in a short time span. 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 to traditional funds in fluctuating or seesawing markets. Further, their performance could vary significantly from the actual performance of their underlying index over the longer period when compared to a shorter period (such as, weeks or months) (read: How To Profit From Market Volatility Using Inverse & Leveraged ETFs). Still, we have highlighted five leveraged inverse ETFs that gained in double digits last week though these involve a great deal of risk when compared to traditional products. This trend might continue at least for the near term if sentiments remain the same. Direxion Daily FTSE China Bear 3x Shares ( YANG - Free Report) – Up 21.4% This fund provides three times (300%) the inverse return of the FTSE China 50 Index. It has AUM of around $83.3 million and sees good trading volume of 348,000 shares a day on average. Expense ratio came in at 0.95%. Direxion Daily Semiconductor Bear 3x Shares ( SOXS - Free Report) – Up 19% This ETF provides three times inverse exposure to the PHLX Semiconductor Sector Index. It charges 0.95% in annual fees and trades in average daily volume of 6.5 million shares. It manages $204.4 million in its asset base (read: Semiconductor ETF Tops in April: 5 Stocks Leading the Rally). BMO REX MicroSectors FANG+ Index -3X Inverse Leveraged ETN ( FNGD - Free Report) – Up 18.5% 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 $20.4 million in its asset base. It charges 95 bps in annual fees and trades in average daily volume of 77,000 shares. Direxion Daily Emerging Markets Bear 3X Shares ( EDZ - Free Report) – Up 16.3% This ETF offers three times inverse exposure to the MSCI Emerging Markets Index, charging investors 95 bps in annual fees. It has amassed about $67.5 million in its asset base while trading in good volumes of 248,000 shares a day on average. Direxion Daily Technology Bear 3x Shares ( TECS - Free Report) - Up 10.9% This product provides three times inverse exposure to the daily performance of the Technology Select Sector Index. It has amassed about $42.4 million in its asset base while charging 95 bps in fees per year from investors. Volume is good as it exchanges around 576,000 shares a day on average (read: Tech Adds Trillion Dollar in Market Cap: 5 Best ETFs YTD). ProShares UltraPro Short QQQ ( SQQQ - Free Report) – Up 10.3% This ETF provides three times inverse exposure to the Nasdaq-100 Index and charges 95 bps per year. It has AUM of $1 billion and trades in average daily volume of 34.1 million shares. Caveat Investors should note that these products are suitable only for short-term traders as these are rebalanced on a daily basis. Further, liquidity can be a big problem as it can make the products more expensive than what they appear (see: all the Inverse Equity ETFs here). 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 >>