Inverse ETFs that bet against the market have seen a boost in activity recently on fears that U.S. stocks are poised for a correction after a robust summer rally.
“Alternative ETF provider ProShares said it has seen net inflows of $3.8 billion into inverse products in 2013, although more than half of that was in the first three months of the year,” CNBC.com reports.
ProShares UltraShort S&P500 (NYSEArca: SDS) is the largest inverse ETF with about $2 billion in assets. SDS is also the best-selling short ETF this year with net inflows of $1.1 billion, according to IndexUniverse data.
SDS is geared to provide daily returns that correspond with 200% of the inverse of the S&P 500, before fees and expenses. It’s a leveraged index ETF.
Other popular ETFs that bet against the market include daily Direxion Financial Bear 3x Shares (NYSEArca: FAZ), ProShares Short S&P500 (NYSEArca: SH) and ProShares Short Russell2000 (NYSEArca: RWM).
As ETFtrends.com has pointed out in countless articles, leveraged and inverse ETFs are designed as trading vehicles rather than buy-and-hold investments. Their providers are very upfront about disclosing these risks as well. Leveraged and inverse ETFs reset on a daily basis.
“Part of the appeal of short ETFs is their ease of access—anyone can trade them, while shorting a stock requires a margin account,” CNBC.com reports. “In a sense, they replicate the performance of using margin without all the costs (although short ETF fees are higher than those for traditional ETFs.) They’re also popular as a means of risk management—to protect assets in a declining market.”
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