Bear ETFs Winning in Uncertain Markets

June 11th at 2:00pm by Tom Lydon

Investors have long been told the advantages of taking a long-term view with their investments – to buy-and-hold, in other words. But the volume and assets trickling into bearish exchange traded funds (ETFs) signal that there are many investors not content to take this bear market lying down.

Risk-averse investors have been taking haven in Treasuries and gold, but those who want to capitalize on the market’s negative direction these days and don’t mind risk are willingly taking on bearish ETFs. [Bear Funds Are On a Roll.]

Such ETFs move opposite, twice the opposite or three times the opposite of the market’s daily direction. For example, if the S&P 500 fell 2% in one day, a double leveraged bear fund would gain 4%. [Why Leveraged ETFs Are Taking the Spotlight.]

At the end of 2008, inverse and leveraged funds dotted the top of the performance charts for the year. We’re seeing that all over again nearly halfway through 2010. Funds by Direxion and ProShares, Market Vectors and PowerShares are dominating the charts. Among the leaders:

  • PowerShares DB Agriculture Double Short ETN (NYSEArca: AGA)
  • Market Vectors Double Short Euro ETN (NYSEArca: DRR)
  • ProShares Ultra Short Euro (NYSEArca: EUO)
  • Direxion Daily30 Year Treasury Bull 3x (NYSEArca: TMF)

Be aware that these funds need daily monitoring and cannot be forgotten about. Volatile markets make for volatile swings in these funds that can cause you to lose big if you’re not careful. But as many investors are finding these days, leveraged and inverse funds have real benefits when handled with care. [Our Guide to Leveraged and Inverse ETFs.]

For more stories about long-short ETFs, visit our long-short category.

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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