The month of March was brutal for the U.S. stock market with both the Dow Jones and S&P 500 registering their worst month since October 2008. Meanwhile, the Nasdaq Composite index logged in its worst month since November 2008.
The steep decline can be attributed to the spread of the deadly coronavirus, which is showing no signs of slowdown. The number of cases has been increasing day by day in the United States, which is now leading the other nations with more than 185,000 confirmed infections (about 20% of the global tally) and nearly 4,000 deaths, per the latest data (read: ETF Areas That Gained Investors Favor in Virus-Infected March). President Donald Trump has warned America to brace for a “very, very painful two weeks” as the White House projected that the coronavirus pandemic could claim 100,000 to 240,000 lives, even if current social distancing guidelines are maintained. United Nations stated that the outbreak is the “most challenging crisis we have faced” since World War II. Given this, the bearish trend is likely to persist in the weeks ahead that will continue to raise the appeal for inverse or inverse leveraged ETFs. 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 (see: all the Inverse Equity ETFs here). 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 five best leveraged inverse ETFs of March from different corners of the stock market that have piled up more than 20% gains, 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. ProShares UltraShort Oil & Gas ( DUG Quick Quote DUG - Free Report) – Up 50.3% This fund seeks two times inverse exposure to the Dow Jones U.S. Oil & Gas Index, charging investors 95 bps in fees. It has amassed $21 million in its asset base and trades in lower volume of more than 52,000 shares per day on average (read: Worst Not Over for Oil: Short Energy Stocks With These ETFs). ProShares UltraShort SmallCap600 ( SDD Quick Quote SDD - Free Report) – Up 29.5% This ETF targets the small-cap space and seeks two times the inverse of the daily performance of the S&P SmallCap 600 Index. It has gathered $7.9 million in its asset base and trades in lower volume of around 13,000 shares per day on average. SDD charges 95 bps in annual fees (read: Short Small-Cap ETFs as U.S. May Face Technical Recession). ProShares UltraShort Midcap 400 ( MZZ Quick Quote MZZ - Free Report) – Up 23.5% With AUM of $4.4 million, this product offers two times inverse exposure to the daily performance of the S&P MidCap 400. It trades in average daily volume of 14,000 shares and charges 95 bps in fees per year from investors. ProShares UltraShort Financials ETF ( SKF Quick Quote SKF - Free Report) – Up 21.1% This fund seeks two times leveraged inverse exposure to the Dow Jones U.S. Financials Index, charging 95 bps in fees. It has amassed $35 million in its asset base and trades in moderate volume of around 102,000 shares per day on average. Daily S&P 500 High Beta Bear 3X Shares ( HIBS Quick Quote HIBS - Free Report) – Up 20.2% This ETF offers three times inverse exposure of the performance of the S&P 500 High Beta Index. It has gathered $8.4 million in AUM within five months of debut and trades in average daily volume of 27,000 shares. The fund charges 95 bps in fees per year from investors (read: 6 Best-Performing Inverse ETFs of Q1). 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. 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. 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 >>