Stock markets have been extremely volatile over the past couple of weeks on fears that the coronavirus would spread further and send global economy into a recession.
Given stock market turmoil, there is a lot of interest in ETFs that provide inverse exposure to the broad market indexes. Before using inverse and leveraged ETFs, investors should understand that these are powerful and risky instruments that should be closely monitored and used only for short-term trading or hedging.
Most of these are designed to achieve their stated performance goal on a daily basis and their performance can differ significantly from their stated daily performance objectives if held for a longer period. Daily rebalancing and compounding can have both favorable and adverse effects on the returns.
The ProShares Short S&P500 (SH - Free Report) seeks daily investment results that correspond to the inverse (-1x) of the daily performance of the S&P 500 (SPY - Free Report) . It has an expense ratio of 0.89% and about $2.5 billion in assets.
The Direxion Daily S&P 500 Bear 1X Shares (SPDN - Free Report) provides similar exposure and charges 0.49%, but is much smaller with just about $35 million in assets. Given these are meant for short term use, investors should focus on trading costs and liquidity.
The ProShares UltraShort S&P500 (SDS - Free Report) provides 2x inverse exposure to the daily performance of the S&P 500. It has an expense ratio of 0.89% and about $1.3 billion in assets.
The ProShares UltraPro Short S&P500 (SPXU - Free Report) seeks to provide 3x inverse exposure to the daily performance of the S&P 500. It charges 0.91% and has gathered about $887 million in assets. Its competitor—the Direxion Daily S&P 500 Bear 3X Shares: (SPXS - Free Report) --charges 1.07% and has about $585 million in assets.
To learn more about these ETFs, please watch the short video above.
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