These days, it’s all about the short exchange traded fund (ETFs). Scroll through the list of top-performing funds year-to-date on Morningstar and you’ll see the proof: the top 33 performing funds so far this year are all variations on the short theme.

The top three among them are:

  • UltraShort Semiconductor ProShares (SSG), up 51.6%
  • MACROshares Oil Down Tradeable Shares (DCR), up 33.5%
  • UltraShort Russell MidCap GR ProShares (SDK), up 31.3%

ETFGuide has noticed the trend, too.

How do these types of funds work? Shorts are inverse funds, designed to move in the opposite direction of their underlying indexes. Ultra short funds move in twice the opposite direction. With those, the potential for losses is magnified right alongside the potential for gains. They should be used with caution.

For these kinds of funds, however, the falling markets have translated into good news. And as the financial news isn’t painting a rosy picture for the time being, investors are increasingly turning to these funds to hedge their losses.

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.