Active Bear, Short ETFs Dine on Dow’s 240-Point Slide

October 23rd at 11:01am by John Spence

ETFs designed to bet against stocks rallied Tuesday as the Dow Jones Industrial Average plunged over 200 points on weak third-quarter earnings and enduring fears over Europe’s debt crisis.

For example, ProShares Short S&P 500 (NYSEArca: SH) was up nearly 2% in late-morning trading. The inverse ETF provides 100% of the opposite return of the S&P 500 on a daily basis, after fees and taxes. The fund has about $2 billion in assets.

There are also leveraged inverse ETFs that magnify the market’s return in the opposite direction, such as ProShares UltraShort S&P 500 (NYSEArca: SDS). It seeks daily investment results that correspond to twice, or 200%, of the inverse performance of the S&P 500.

These ETFs are designed as trading vehicles that let investors hedge or speculate on market pullbacks. They’re not meant for buy-and-hold investors.

Volatility-linked exchange traded products also traded higher in Tuesday’s sell-off. The iPath S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX) added about 8%. The exchange traded note tracks the performance of futures contracts based on the CBOE Volatility Index, Wall Street’s fear gauge. [Bearish Options Trading in VIX ETF Reverses Long-Term Trend]

Elsewhere, AdvisorShares Active Bear ETF (NYSEArca: HDGE) climbed 1.5% at last check. It’s an actively managed ETF that bets against stocks by shorting them.

The fund managers try to identify companies with low earnings quality or aggressive accounting. [Short Bets Pay Off for Actively Managed Bear ETF]

Inverse, volatility and bear ETFs have had a tough 2012 with the S&P 500 up 16% year to date heading into Tuesday’s drop. Active Bear ETF was off 17.8% year to date, according to Morningstar. VXX, the volatility fund, had tumbled 75.7% before Tuesday’s bounce.

AdvisorShares Active Bear ETF

Full disclosure: Tom Lydon’s clients own VXX.

The opinions and forecasts expressed herein are solely those of John Spence, 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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