As the U.S. continues along the extended bull run, the markets are at greater risk of an uncertain turn upending investment portfolios. Consequently, more traders may look to inverse exchange traded funds to hedge the risks or even leveraged options to capitalize on short-term opportunities.
ETF Trends publisher Tom Lydon spoke with Sylvia Jablonski, managing director and head of capital markets and institutional strategy at Direxion Investments, at the Inside ETFs conference that ran Jan. 22-25, 2017 to talk about leveraged and inverse ETFs in a time of greater uncertainty.
“Since the election, we have a new president took office, and with a new president comes a a lot of uncertainty,” Jablonski said. “We’ve heard advisors talking a lot about two things: What are the opportunities and what are the risks.”
U.S. equities have popped since the presidential elections, but have recently meandered as traders grew more uncertain over President Donald Trump’s ability to execute campaign promises and the administration’s protectionist stance.
Looking at opportunities, Jablonski pointed to tax reform that could help companies more efficiently expand, along with deregulation cutting the red tape that has impeded many areas, like what Dodd-Frank has done to shackle the financials segment.
“On the 3x side, we have a lot of opportunities,” Jablonski said. “A 3x trader might be looking for something like leverage exposure S&P 500 or regional banks or financials.”
Opportunistic traders can look to something like the Direxion Daily Financial Bull 3X Shares (NYSEArca: FAS) and Direxion Daily Regional Banks 3x Bull Shares (NYSEArca: DPST) to capitalize on short-term views on further strength in the financial sector, or utilize the Direxion Daily Financial Bear 3X Shares (NYSEArca: FAZ) and Direxion Daily Regional Banks 3x Bear Shares (NYSEArca: WDRW) to express short-term hedge of the opposite if your view is mean reversion.
The Direxion Daily S&P 500 Bull 3X Shares (NYSEArca: SPXL) could help traders capture a rally in large-caps as we continue to see deregulation, favorable tax policies and potential mergers ahead to support market moves.
On the other hand, Jablonski warned of ongoing uncertainty and potential volatility that remains a risk to investors.
“On the inverse side, we have these negative one beta tools,” Jablonski added. “They’re tax efficient, they’re inexpensive – they’re 45 basis points, and they essentially allow an advisor advisors to have a long-term hedge in his or her portfolio.”
For instance, Direxion recently launched the Direxion Daily Consumer Staples Bear 1X Shares (NYSEArca: SPLZ) and Direxion Daily Utilities Bear 1X Shares (NYSEArca: UTLZ) to hedge against weakness in the consumer staples and utilities sectors.
Fixed-income investors may also hedge against the Federal Reserve interest rate hike through inverse or short Treasury bond ETFs, such as the Direxion Daily 7-10 Year Treasury Bear 1x Shares (NYSEArca: TYNS) or Direxion Daily 20+ Year Treasury Bear 1x Shares (NYSEArca: TYBS).
Click here to read Direxion’s 2017 Outlook on ETF Trends and NYSE’s exclusive 2017 Market Outlook Channel.