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5 Best Inverse Leveraged ETF Areas of 2018

Sanghamitra Saha

With 2017 drawing to a close, it is time to look back at what worked best in the investment world. Leveraged ETFs sure deserve a mention here as the winning ones shower immense gains on investors.

These ETFs provide exposure that is a multiple of the performance of the underlying index. These funds employ various investment strategies such as the use of swaps, futures contracts and other derivative instruments to accomplish their objectives.

Since most of these ETFs seek to attain their goals on a daily basis, their performance could vary significantly over a longer period when compared to the short period due to their compounding effect. Still, the space remains a hot area for investors looking for high payoffs in a short time.

On a year-to-date basis (as of December 24, 2018), the S&P 500-based ETF SPY retreated about 12.8%, Dow Jones-based ETF DIA lost 12.1%, while Nasdaq 100-based QQQ shed around 9.5% (read: 5 Long/Short ETFs Handily Beating S&P 500 in 2018).

The Fed’s policy tightening, renewed global growth worries, an oil price slump, widespread tech selloffs, heightened trade tensions between the United States and China, fears of peaking U.S. economic growth, and finally the government shutdown were the botherations.

Needless to say, while the border market had displayed such downbeat performances, inverse leveraged ETFs have logged significant gains. Against this backdrop, investors must be interested in knowing about the top-leveraged inverse ETF performers of 2018.

Oil & Energy

Oil and energy have been one of the most battered spaces in 2018. Slower global growth, rising supplies and worries of pipeline constraints played foul for the sector. Though the OPEC decided on a fresh output cut deal for the first six months of 2019, it failed to offer a major boost to this ailing commodity. As a result, the following inverse leveraged ETFs gained considerably (read: Is Fresh OPEC+ Output Cut Enough to Boost Oil & Energy ETFs?).

Direxion Daily Natural Gas Related Bear 3x Shares (GASX) – Up 193.85%

Direxion Daily S&P Oil & Gas Exploration & Production Bear 3x Shares (DRIP) – Up 115.6%

Direxion Daily Energy Bear 3X Shares (ERY) – Up 80.62%

Financials

Thanks to the probability of faster-than-expected Fed rate hikes, the short end of the yield curve is slightly rising faster than the long end, narrowing the spread between both the yields and indicating a flattening yield curve.

Since banks borrow money at short-term rates and lend capital at long-term rates, steepening of the yield curve bodes well for bank ETFs. And if the yield curve flattens, the net interest rate margins of banks decline. This clearly explains the outperfromnace of the inverse leveraged financial ETFs (read: Why Financial ETFs Are Down Despite Decent Bank Earnings).

Direxion Daily Regional Banks Bear 3X Shares (WDRW) – Up 84.85%

ProShares UltraPro Short Financials (FINZ) – Up 59.52%

Developed Markets

A substantial slowdown has been noticed in the Euro zone and Japan this year despite a massive stimulus policy. The Nikkei 225 Stock Average slid into a bear market at the end of the year. Probably this is why developed markets also did not do well and benefited this below-mentioned ETF.

Direxion Daily Developed Markets Bear 3X Shares (DPK) – Up 63.71%

Mid-Caps

In the U.S. market rout, mid caps were one of the worst losers.

ProShares UltraPro Short MidCap400 (SMDD) – Up 61.32%

Direxion Daily Mid Cap Bear 3X Shares (MIDZ) – Up 57.60%

Small-Caps

Small-cap stocks have also been battered by rising rate and recessionary fears in the U.S. economy. This benefited the below-mentioned ETFs (read: 7 Inverse ETFs That Soared More Than 70% in Q4).

Direxion Daily Small Cap Bear 3X Shares TZA – Up 52.48%

ProShares UltraPro Short Russell2000 SRTY – Up 50.38%

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PRO-SH 3X FINL (FINZ): ETF Research Reports
 
SPDR-DJ IND AVG (DIA): ETF Research Reports
 
DIR-EGY BEAR 3X (ERY): ETF Research Reports
 
DIRX-D SP OG BR (DRIP): ETF Research Reports
 
DIRX-SC BEAR 3X (TZA): ETF Research Reports
 
PRO-ULS R2000 (SRTY): ETF Research Reports
 
DIR-D NG BR3X (GASX): ETF Research Reports
 
NASDAQ-100 SHRS (QQQ): ETF Research Reports
 
SPDR-SP 500 TR (SPY): ETF Research Reports
 
DIR-DM BEAR3X (DPK): ETF Research Reports
 
DIR-D RG BK BR3 (WDRW): ETF Research Reports
 
PRO-ULS MID400 (SMDD): ETF Research Reports
 
DIRX-MC BEAR 3X (MIDZ): ETF Research Reports
 
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