The so-called bear exchange traded funds(ETFs) have experienced inflows despite less than average returns, making them a prospect for investors that seek a return.
This year, bear mutual funds have hauled in $10 billion. This is twice as much as previous highs seen in 2006. Meanwhile, 19 long-short mutual funds have rolled out this year, another record, reports Joe Morris for Ignites.
Assets in bear ETFs are no slouch, either: as of October 2009, short and short leveraged funds held $20.5 billion in assets, up from $10.3 billion a year earlier. That’s a 99% jump.
The inflows reflect a pessimistic view of the markets. Despite the market’s rally off the March 9 lows, many investors didn’t buy it and took havens in short funds. (When and how to use these ETFs).
Leveraged and inverse ETFs are funds that aim to magnify the daily moves of the market. In a short double-leveraged fund, if the index goes up, then the fund goes down twice that amount. In a long leveraged fund, if the index goes up, the fund doubles that. The same principle applies when you’re talking about triple-leveraged ETFs, too.
However, leveraged and inverse ETFS are not intended for all investors. They can be very volatile and they’re also meant to reflect the daily movements of the market. The longer a fund is held, the further it can deviate from its benchmark. Be sure to understand the risks before you buy. (Do long-short ETFs belong in your portfolio?)
For more stories about long-short ETFs, visit our long-short ETFs category.
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.