Best Inverse ETFs

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Exchange-traded funds (ETFs) that generate inverse returns of their underlying indices are known as inverse ETFs. To achieve this, inverse ETFs use derivative securities, such as swap agreements, futures contracts or options. Inverse ETFs are used by speculative traders and investors seeking day trades against underlying indexes. For example, an inverse ETF that tracks the S&P 500 will decrease by 1% when the S&P gains by 1%. Here is Benzinga’s list of the best inverse ETFs.

Quick Look at the Best Inverse ETFs:

• ProShares UntraShort Basic Materials
• Direxion Daily S&P 500 Bear 1X Shares
• ProShares Ultrashort Semiconductors
• AXS TSLA Bear Daily ETF
• Direxion Daily Financial Bear 3X Shares

The Best Inverse ETFs

Inverse ETF investing may be quite advantageous. However, all investments have advantages and disadvantages. To get the maximum exposure in this market, picking the correct inverse ETF is crucial. As a result, a list of some of the top inverse ETFs can be found below.

ProShares UltraShort Basic Materials (NYSEARCA: SMN)

This ETF corresponds to two times the inverse daily performance of the Dow Jones U.S. Basic Materials Index. The fund makes investments in financial instruments that, in ProShare’s opinion, should generate daily returns that are compatible with the goals of the investment strategy.

The ETF’s current net expense ratio is 0.95%, and Michael Neches manages the fund. It has net assets worth $8.23 million in total. 

Direxion Daily S&P 500 Bear 1X Shares (NYSEARCA: SPDN)

The SPDN ETF aims for daily investment results, before fees and expenses, of 100% of the inverse performance of the S&P 500 Index. 

The fund generally invests in futures contracts, swap agreements, short positions and other financial instruments that offer short exposure to the index equivalent to at least 80% of the fund’s net assets. 

The fund’s net expense ratio for investors is 0.49%. It has $581.79 million worth of assets. Paul Brigandi manages the fund.  

The S&P has seen considerable losses this year. As a result, SPDN has significantly benefited from its downturn.

ProShares Ultrashort Semiconductors (NYSEARCA: SSG)

If you wish to bet against the semiconductor industry, this may be the fund for you. With total assets worth $15.4 million, this investment corresponds to two times the inverse of the daily performance of the Dow Jones U.S. Semiconductors Index.

The index measures the stock performance of U.S. companies in the semiconductor sector, an industry essential to components of electronic devices. 

This year the fund has produced a significant return but comes with a considerable expense ratio of 0.95%. A few of its top holdings include the Dj U.S. Semiconductors Index Swap Morgan Stanley & Co. International Plc and the Dj U.S. Semiconductors Index Swap Societe Generale. 

AXS TSLA Bear Daily ETF (NASDAQ: TSLQ)

Tesla has produced incredible returns over recent years, but not everyone is bullish on the company. And if you are skeptical about Tesla’s significant run, then the AXS TSLA Bear Daily ETF is perfect for you.

The investment fund inversely corresponds to the performance of Tesla. The fund maintains at least 80% exposure to financial instruments that provide inverse exposure to Tesla. 

The fund has produced gains of 30% in the last month but comes with a net expense ratio of 1.15% for investors. The fund is managed by Matthew Tuttle and Parker Binion. 

Direxion Daily Financial Bear 3X Shares (NYSEARCA: FAZ)

The Direxion Daily Financial Bear 3X Shares is an investment that aims for results of 300% inverse of the Financials Select Sector Index. Therefore, an investment in this fund would constitute a bet against some of the biggest U.S. financial firms represented by the S&P 500.

The fund holds assets amounting to $213.78 million consisting of Dreyfus Government Secs Cash Mgmt Admin and Goldman Sachs FS Treasury Intms Instl, to name two. 

Because of the market’s exposure to a volatile macroeconomic environment, the investment has generated a positive return this year. The fund imposes a 1.01% cost ratio on investors.

What is an Inverse ETF?

An inverse ETF is a fund constructed to profit from a decline in an underlying index it tracks. Investing in inverse ETFs is comparable to opening short bets on various equities.

Inverse ETFs use derivatives such as futures contracts to make a bet on the direction of an asset’s price. 

Inverse ETFs are not long-term investments since the fund manager constantly buys and sells derivative contracts. Therefore, there is no assurance that the performance of the inverse ETF will be comparable to that of an index.

They need to be actively managed to buy financial instruments; these high costs are distributed to investors and charged as an expense ratio. 

Given that its returns are based on the daily variation in the value of an underlying index, it is best employed as a short-term investing strategy.

Advantages of Inverse ETFs

Investors can gain a variety of benefits from investing in inverse ETFs, such as an increased amount of investment or trading opportunities. Some of the advantages are provided below.

More opportunity: The ability to profit when the stock market is down is one of the main benefits of inverse ETFs. This feature can help protect your portfolio and cover any losses in your investments. In challenging times such as this year, investors can achieve profits.

Reduced risk: If you are an investor with long-term bull positions, it is a great way to cover your positions. Announcements such as earnings, U.S. data or monetary policies could jeopardize your position. These funds can reduce risk and bring you to break even. 

Limits losses: Your losses are constrained as opposed to when you short a stock or ETF. The risk is high if you opt to short an asset since the losses you may sustain are limitless. An inverse ETF, however, limits your losses to the amount you invested.

Considerations With Inverse ETFs

Derivative risks: Inverse ETFs provide exposure through employing derivatives. However, derivative investments are considered aggressive strategies and expose traders to credit and liquidity risks. 

Costs: The costs of inverse ETFs can be significantly higher than shorting a stock. The fees, transaction charges and investing strategies used by the fund account for the increased expense ratios.

Market bias: Ultimately, the market has a long-term positive tilt. Stocks often fare better than other asset groups. As a result, placing a bet against the stock market carries a high degree of risk.

Compare ETF Brokers

The ETF market offers several investment opportunities to individuals; however, investors must be set up with a broker to take advantage of the potential profits available. Many brokers offer different asset classes to trade but finding a broker that offers inverse ETFs may be more challenging. Below is a list of potential brokers you may look to for inverse ETFs.

Frequently Asked Questions

The post Best Inverse ETFs by Sam Boughedda, Stock Market Analyst appeared first on Benzinga. Visit Benzinga to get more great content like this.