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7 Best Performing Inverse ETFs of February

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After hitting record highs in mid-February, the global stock market took a bloodbath on rising fears that the coronavirus outbreak will turn into a pandemic, leading to a slowdown in global economic growth. Given the panic, all the three major indices pushed into a correction territory.

Notably, the S&P 500 registered the fastest market correction in the history with six consecutive days of fall from its peak. The index is down nearly 13% from its peak on Feb 19. Overall, the U.S. stocks have lost about $3.6 trillion in value since then (read: Dow Logs Worst One-Day Slump in History: ETF & Stock Winners).

Worldwide, the deadly virus cases have topped 89,000 with more than 3,000 related deaths. The continued rise in the number of deadly coronavirus cases has sparked concerns about its long-term economic impact on trade, ports, supply chains and consumer confidence. In particular, a growing number of companies have warned that the epidemic will prevent them from meeting sales or profit targets for the first three months of the year. Per International Monetary Fund, the outbreak could reduce global economic growth by 0.1% this year. Goldman now projects that the U.S. economy will grow just 1.2% in the first quarter, down from 2.1% in the fourth quarter and 2.3% in full-year 2019.

This has resulted in strong demand for inverse or inverse leveraged ETFs last month. 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 (read: 10 Inverse ETFs That Gained More Than 30% Over the Past Week).

However, these funds run the risk of huge losses compared with traditional ones in fluctuating or seesawing markets. Further, their performance could vary significantly from the actual performance of the underlying index over the longer period compared to a shorter period (such as, weeks or months).

We have highlighted seven leveraged inverse ETFs that have piled up handsome gains in February though these involve a great deal of risk when compared to traditional products. This uptrend might continue, at least for the near term, if sentiments remain the same.

Direxion Daily Natural Gas Related Bear 3X Shares – Up 74.5%

This product provides three times inverse exposure to the ISE-Revere Natural Gas Index. It has amassed $17.3 million in its asset base and trades in solid volume of 73,000 shares a day on average. The ETF charges 95 basis points (bps) in fees per year.

Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 3X Shares (DRIP - Free Report) – Up 71.1%

This fund seeks three times inverse exposure of the performance of the S&P Oil & Gas Exploration & Production Select Industry Index. DRIP has accumulated $70.4 million in its asset base and trades in solid volume of more than 508,000 shares a day on average. The fund charges 95 bps in annual fees.

Direxion Daily Energy Bear 3x Shares ETF (ERY - Free Report) - Up 50.6%

This product provides three times inverse exposure to the Energy Select Sector Index. It has AUM of $42 million and trades in good volume nearly 323,000 shares. The ETF charges annual fee of 95 bps (read: ETFs at Risk as Oil Slides to 13-Month Low on Covid-19 Scares).

MicroSectors U.S. Big Banks Index -3X Inverse Leveraged ETN (BNKD - Free Report) – Up 48.8%

BNKD seeks to offer three times leveraged exposure to the Solactive MicroSectors U.S. Big Banks Index. The ETN has accumulated $20 million in its asset base. It charges 95 bps in annual fees and trades in average daily volume of about 3,000 shares.

Direxion Daily Regional Banks Bear 3x Shares – Up 47.8%

WDRW seeks to deliver thrice the inverse return of the S&P Regional Banks Select Industry Index, charging 95 bps in fees per year. WDRW has accumulated $1.6 million in its asset base and trades in a paltry volume of around 6,000 shares a day on average.

Direxion Daily Junior Gold Miners Index Bear 3X Shares (JDST - Free Report) – Up 34.4%

This ETF offers three times inverse exposure to the daily performance of the MVIS Global Junior Gold Miners Index. It has been able to manage assets worth $184.6 million and sees average daily volume of 6.6 million shares. The fund has 0.95% in expense ratio.

Direxion Daily Mid Cap Bear 3X Shares – Up 32.3%

This ETF provides three times inverse exposure to the S&P MidCap 400 Index. It charges 0.95% in annual fees and trades in average daily volume of 5,000 shares. It has managed $6.6 million in its asset base.

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. Clearly, these could be attractive for those with high-risk tolerance, and a belief that the “trend is the friend” in this specific corner of the investing world.

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