As the equities markets continue to slide on ongoing concerns, exchange traded fund investors may look to strategies that track the CBOE Volatility Index and bearish play on stocks.
U.S. stocks broke even after falling off for most of the session Thursday as global stocks weakened in response to Japan’s central banks decision to push off additional monetary easing.
The upcoming U.K. referendum on European Union membership, or so-called Brexit vote, has fueled the recent bout of uncertainty, with both the Bank of Japan and Federal Reserve both pointing to upcoming vote as part of the reason for delaying their monetary policies.
Related: Yen ETF Jumps as BOJ Stands Pat, ‘Brexit’ Concerns Mount
“We’re close to peak uncertainty,” Neil Robson, portfolio manager at Columbia Threadneedle Investments, told the Wall Street Journal. “Brexit is adding to this really low interest-rate, really low growth malaise.”
New U.K. polls have added to concerns as surveys showed an increasing percentage of British voters leaning toward a break from the European Union.
“The market is clearly showing us today how we would react to an exit,” Philippe Gijsels, chief strategist at BNP Paribas Fortis, told the Wall Street Journal. ”The question is how much [Brexit uncertainty] is already priced in. We’re telling our clients that the summer might be volatile”
Consequently, investors have increasingly turned to VIX-related and inverse stock ETFs as tactical, short-term trades to hedge the market risks.
For instance, over the past week, the REX VolMAXX Long VIX Weekly Futures Strategy ETF (BATS: VMAX) surged 24.0%, iPath S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX) jumped 23.5% and ProShares VIX Short-Term Futures ETF (NYSEArca: VIXY) increased 23.3%, with the VIX now hovering around 20.9, its highest level since February.
Related: VIX ETFs Surge as Fear Grips Market
More aggressive traders have turned to the leveraged ProShares Ultra VIX Short-Term Futures (NYSEArca: UVXY), which has gained 49.5% over the past week. UVXY has also been among the highest volume securities on the NYSE over the past week, according to ProShares.
Related: Inverse ETFs Step into the Limelight
For those who were wary of a pullback in the S&P 500 index, there are a number of bearish or inverse ETF options with varying levels of leveraged exposure to capitalize off a weakening S&P 500 as well. The ProShares Short S&P500 (NYSEArca: SH) takes a simple inverse or -100% daily performance of the S&P 500 index. Alternatively, for the more aggressive trader, leveraged options include the ProShares UltraShort S&P500 ETF (NYSEArca: SDS), which tries to reflect the -2x or -200% daily performance of the S&P 500, the Direxion Daily S&P 500 Bear 3x Shares (NYSEArca: SPXS), which takes the -3x or -300% daily performance of the S&P 500, and ProShares UltraPro Short S&P 500 ETF (NYSEArca: SPXU), which also takes the -300% daily performance of the S&P 500. Over the past week, SH was up 2.2%, SDS was 4.4% higher, SPXS gained 6.7% and SPXU rose 6.7%.
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