Large money managers are bracing for a market correction. Exchange traded fund investors can also hedge against a turn in equities through inverse or bearish ETF options.
The so-called Warren Buffett Indicator, or the Total Market Cap to GDP Ratio, is triggering sell-alert warnings, and Warren Buffett is already trimming his U.S. stock exposure, MoneyNews reports. [A Short ETF Idea for Developed Markets]
Investors who believe the markets are set to about face have a number of broad short or inverse ETF options available. For instance, the Direxion Daily Total Market Bear 1x Shares (NYSEArca: TOTS) tries to reflect the inverse or -100% of the MSCI US Broad Market Index. Over the past week, TOTS has increased 3.9%. [Inverse S&P 500 ETF Ideas to Hedge a Correction]
Alternatively, investors can also capitalize off the fall in the widely viewed Dow Jones Industrial Average through the ProShares Short Dow30 ETF (NYSEArca: DOG), which tries to reflect the -100% daily performance of the Dow Jones Industrial Average. Additionally, for the more aggressive traders, the ProShares UltraShort Dow 30 ETF (NYSEArca: DXD) takes the -200% of the Dow Jones and the ProShares UltraPro Short Dow30 (NYSEArca: SDOW) reflects the -300% of the Dow. [Do You Know How Your Leveraged ETFs Work?]
Warren Buffett has pointed to “disappointing performance” in prominent American companies like Johnson & Johnson (NYSE: JNJ), Procter & Gamble (NYSE: PG) and Kraft Foods (NasdaqGS: KRFT). Additionally, Berkshire Hathaway (NYSE: BRK.A) has been reducing exposure to consumer stocks.
Traders who would like to hedge against further weakness in consumer sectors can take a look at options like the ProShares UltraShort Consumer Goods ETF (NYSEArca: SZK), which tries to reflect the -2x or -200% daily performance of the Dow Jones U.S. Consumer Goods Index, or the ProShares UltraShort Concumer Services ETF (NYSEArca: SCC), which takes the -200% daily performance of the Dow Jones U.S> Consumer Services Index.
Other billionaire money managers like John Pualson and George Soros are also clearing out of financial stocks, including JPMorgan Chase (NYSE: JPM), Citigroup (NYSE: C) and Goldman Sachs (NSYE: GS).
Investors can also hedge the financials sector through various levels of leveraged inverse strategies. For instance, the ProShares Short Financials ETF (NYSEArca: SEF) takes the single inverse or -100% of financial stocks, while the ProShares UltraShort Financials (NYSEArca: SKF) takes a leveraged -200% of financials. Additionally, for -3x or -300% performance, there are the ProShares UltraPro Short Financials (NYSEArca: FINZ) and Direxion Daily Financial Bear 3X Shares (NYSEArca: FAZ).
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Max Chen contributed to this article.