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COVID-19 has led to the historic crash in the U.S. stock market. The pandemic has resulted in lockdowns across cities and forced people to stay indoors, bringing business activity and the economy to a halt. There is no sign of the relentless slide in the stock market stopping anytime soon. Even the large stimulus from the government and the central bank to contain the virus failed to assure the market and investors.
The bearish trend is likely to continue with some analysts expecting bigger drops. Economists at Goldman Sachs expect the S&P 500 Index to decline to a low of 2000. It warned that GDP will decline at an annual rate of 24% in the second quarter and record 6% drop in the first three months of the year. Corporate profits will also decline with earnings per share to be estimated at $110 in 2020, indicating 33% drop from 2019. Declines in consumer spending, manufacturing activity and building investment will weigh on the economy this spring, per the analyst (read: Coronavirus Panic to Send Economy Into Recession: ETF Picks).
Famed hedge fund Bridgewater predicts that the pandemic will result in $4 trillion in lost corporate revenues for both public and private businesses in the United States. It projects a 6% decline in U.S. GDP for 2020, with the biggest hit during the second quarter, and a decline of $12 trillion for global businesses in 2020.
Given the bearish trends, investors could easily tap this opportune moment by going short on the index. There are a number of inverse or leveraged inverse products in the market that offer inverse (opposite) exposure to the index. Below, we have highlighted those and some of the key differences between each:
This fund provides unleveraged inverse exposure to the daily performance of the S&P 500 index. It is the most popular and liquid ETF in the inverse equity space with AUM of $3.3 billion and average daily volume of 9 million shares. The fund charges 89 bps in annual fees and has gained 36.8% in a month.
This ETF also offers unleveraged inverse exposure to the daily performance of the S&P 500 index. It has accumulated $70.8 million in its asset base while trading in average daily volume of 84,000 shares. The fund is cheap relative to other inverse products as it charges just 45 bps in annual fees. It has gained 36.6% in the same time frame (read: Shorting the S&P 500 with ETFs: What You Should Know).
This fund seeks two times (2x) leveraged inverse exposure to the index, charging 89 bps in fees. It is also relatively popular and liquid having amassed nearly $1.7 billion in AUM and more than 9.6 million shares in average daily volume. It has climbed 75% in a month.
Investors having a more bearish view and higher risk appetite could find SPXU interesting as the fund provides three times (3x) inverse exposure to the index. The ETF charges a fee of 91 bps per year and trading volume is solid, exchanging around 10.1 million shares per day on average. It has amassed $1.1 billion in its asset base and is up 113.4% in the same time frame.
Like SPXU, this product also provides three times inverse exposure to the index but comes with 4 bps higher fees. It trades in solid volume of about 13.3 million shares and has AUM of $809.7 million. SPXS surged 113.1% in a month (read: 5 Stocks in the S&P 500 ETF Still Up YTD).
Bottom Line
While the strategy is highly beneficial for short-term traders, it could lead to huge losses compared with traditional funds in fluctuating or seesawing markets. Further, their performances could vary significantly from the actual performance of their underlying index over a longer period when compared to the shorter period (such as, weeks or months) due to their compounding effect (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 intriguing 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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S&P 500 to Fall Further: Bet on These ETFs
COVID-19 has led to the historic crash in the U.S. stock market. The pandemic has resulted in lockdowns across cities and forced people to stay indoors, bringing business activity and the economy to a halt. There is no sign of the relentless slide in the stock market stopping anytime soon. Even the large stimulus from the government and the central bank to contain the virus failed to assure the market and investors.
The bearish trend is likely to continue with some analysts expecting bigger drops. Economists at Goldman Sachs expect the S&P 500 Index to decline to a low of 2000. It warned that GDP will decline at an annual rate of 24% in the second quarter and record 6% drop in the first three months of the year. Corporate profits will also decline with earnings per share to be estimated at $110 in 2020, indicating 33% drop from 2019. Declines in consumer spending, manufacturing activity and building investment will weigh on the economy this spring, per the analyst (read: Coronavirus Panic to Send Economy Into Recession: ETF Picks).
Famed hedge fund Bridgewater predicts that the pandemic will result in $4 trillion in lost corporate revenues for both public and private businesses in the United States. It projects a 6% decline in U.S. GDP for 2020, with the biggest hit during the second quarter, and a decline of $12 trillion for global businesses in 2020.
Given the bearish trends, investors could easily tap this opportune moment by going short on the index. There are a number of inverse or leveraged inverse products in the market that offer inverse (opposite) exposure to the index. Below, we have highlighted those and some of the key differences between each:
ProShares Short S&P500 ETF (SH - Free Report)
This fund provides unleveraged inverse exposure to the daily performance of the S&P 500 index. It is the most popular and liquid ETF in the inverse equity space with AUM of $3.3 billion and average daily volume of 9 million shares. The fund charges 89 bps in annual fees and has gained 36.8% in a month.
Direxion Daily S&P 500 Bear 1X Shares (SPDN - Free Report)
This ETF also offers unleveraged inverse exposure to the daily performance of the S&P 500 index. It has accumulated $70.8 million in its asset base while trading in average daily volume of 84,000 shares. The fund is cheap relative to other inverse products as it charges just 45 bps in annual fees. It has gained 36.6% in the same time frame (read: Shorting the S&P 500 with ETFs: What You Should Know).
ProShares UltraShort S&P500 ETF (SDS - Free Report)
This fund seeks two times (2x) leveraged inverse exposure to the index, charging 89 bps in fees. It is also relatively popular and liquid having amassed nearly $1.7 billion in AUM and more than 9.6 million shares in average daily volume. It has climbed 75% in a month.
ProShares UltraPro Short S&P500 (SPXU - Free Report)
Investors having a more bearish view and higher risk appetite could find SPXU interesting as the fund provides three times (3x) inverse exposure to the index. The ETF charges a fee of 91 bps per year and trading volume is solid, exchanging around 10.1 million shares per day on average. It has amassed $1.1 billion in its asset base and is up 113.4% in the same time frame.
Direxion Daily S&P 500 Bear 3x Shares (SPXS - Free Report)
Like SPXU, this product also provides three times inverse exposure to the index but comes with 4 bps higher fees. It trades in solid volume of about 13.3 million shares and has AUM of $809.7 million. SPXS surged 113.1% in a month (read: 5 Stocks in the S&P 500 ETF Still Up YTD).
Bottom Line
While the strategy is highly beneficial for short-term traders, it could lead to huge losses compared with traditional funds in fluctuating or seesawing markets. Further, their performances could vary significantly from the actual performance of their underlying index over a longer period when compared to the shorter period (such as, weeks or months) due to their compounding effect (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 intriguing for those with high-risk tolerance, and a belief that the “trend is the friend” in this specific corner of the investing world.
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 >>