The S&P 500 is rallying to start 2019, but some traders are expressing a different with the ProShares Short S&P500 (NYSEArca: SH), one of the largest and most heavily traded inverse exchange traded funds in the U.S.
SH is not a leveraged fund. Rather, the ProShares product is designed to deliver the daily inverse performance of the S&P 500. For example, if the S&P 500 falls by 1% on a particular day, SH should rise by a similar amount. Data suggest traders are flocking to SH.
“The $2.3 billion ProShares Short S&P 500 ETF, ticker SH, took in nearly $380 million last week, the most since 2010,” reports Bloomberg. “Although Friday saw the S&P 500’s third-biggest rally since 2012, the inflows, which came toward the end of the week, show that not everyone sees blue skies for stocks.”
Risks To Consider
While SH is not a leveraged ETF, it is still not intended to be a long-term investment vehicle.
“Due to the compounding of daily returns, ProShares’ returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period,” according to ProShares. “These effects may be more pronounced in funds with larger or inverse multiples and in funds with volatile benchmarks. Investors should monitor their holdings as frequently as daily.”
With the S&P 500 soaring to start 2019, SH is off 2.65% over the past week, but the inverse ETF could merit attention over the near-term.
“Still cautious on U.S. stocks is Morgan Stanley’s Mike Wilson. The firm’s chief U.S. equity strategist recently warned clients that Apple Inc.’s cut to its revenue forecast and a slide in a gauge of U.S. manufacturing could just be the start of a raft of negative news to come,” according to Bloomberg.
For more aggressive, risk-tolerant traders, leveraged alternatives to SH 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.
For more on leveraged & inverse ETFs, please visit our leveraged & inverse channel.