Short ETFs See Inflows on Fears Market Set for a Fall

ETF Trends

Inverse ETFs that bet against the market have seen a boost in activity recently on fears that U.S. stocks are poised for a correction after a robust summer rally.

“Alternative ETF provider ProShares said it has seen net inflows of $3.8 billion into inverse products in 2013, although more than half of that was in the first three months of the year,” CNBC.com reports.

ProShares UltraShort S&P500 (SDS) is the largest inverse ETF with about $2 billion in assets. SDS is also the best-selling short ETF this year with net inflows of $1.1 billion, according to IndexUniverse data.

SDS is geared to provide daily returns that correspond with 200% of the inverse of the S&P 500, before fees and expenses. It’s a leveraged index ETF.

Other popular ETFs that bet against the market include daily Financial Bear 3x Shares (FAZ), ProShares Short S&P500 (SH) and ProShares Short Russell2000 (RWM).

As ETFtrends.com has pointed out in countless articles, leveraged and inverse ETFs are designed as trading vehicles rather than buy-and-hold investments. Their providers are very upfront about disclosing these risks as well. Leveraged and inverse ETFs reset on a daily basis.

“Part of the appeal of short ETFs is their ease of access—anyone can trade them, while shorting a stock requires a margin account,” CNBC.com reports. “In a sense, they replicate the performance of using margin without all the costs (although short ETF fees are higher than those for traditional ETFs.) They’re also popular as a means of risk management—to protect assets in a declining market.”

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

Rates

View Comments (4)