Hear that growling? It’s bearish out there for some investors, and they’re finding refuge in inverse and leveraged exchange traded funds (ETFs). It’s one of the primary benefits of leveraged and inverse funds: you can use them to hedge daily moves in the market. Investors buy them for different reasons. Some may feel that a certain sector or asset class is in for a decline, so they’ll buy a short fund to capitalize on it. Others may hold positions in certain areas but be unwilling to sell them based on short-term market moves, in which case they would be used to hedge that current holding. [How to Mitigate Market Volatility With ETFs.]
As concerns about the European economy persist, leveraged and inverse ETFs are taking center stage. Leading the charge today include:
- Direxion Daily Latin America Bear 3x Shares (NYSEArca: LHB)
- ProShares UltraShort Silver (NYSEArca: ZSL)
- ProShares UltraShort MSCI Brazil (NYSEArca: BZQ)
- Direxion Daily China Bear 3x Shares (NYSEArca: CZI)
- Direxion Daily Real Estate Bear 3x Shares (NYSEArca: DRV)
Bear in mind that ETF providers only guarantee that these ETFs will track their benchmarks on a daily basis. Hold them longer, and that guarantee no longer applies. That’s because at the end of each closing day, leveraged and inverse ETFs effectively “reset” and start the next day over at even with the benchmark. [All About Leveraged and Inverse ETFs.]
These ETFs are incredibly useful for the reasons stated above, but they should be fully understood before the buy is made or you could get hurt. Leveraged and inverse ETFs aren’t for everyone.
For more stories about leveraged and inverse ETFs, visit our 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.