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5 Inverse ETFs to Make a Fast Buck on Flaring Trade Tension

Sweta Killa
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The U.S. nine-year bull market was threatened by list of woes in recent months. After inflation fears, faster-than-expected rate hike concerns, and the tech rout, the rounds of sanctions in a tit-for-tat situation between the two largest economies, United States and China, are intensifying fears of a full-blown trade war.

This is especially true, as President Donald Trump doubled down on the trade dispute by threatening to impose new tariff of $100 billion against China in addition to the proposed $50 billion of tariffs on Chinese goods targeting robotics, information technology, communication technology and aerospace. The United States earlier this week unveiled a list of 1,300 China-made products, which will be hit by 25% tariffs. These include a wide array of products including raw materials, construction machinery, agricultural equipment, electronics, medical devices and consumer goods.

In response to the new tariff of $100 billion, China hit back saying that it is ready to pay "any cost" in a trade war. The new taxes came a day after China retaliated with potential 25% duties on 106 American goods, including soybeans, corn, aircraft, and vehicles, worth an estimated $50 billion against Trump’s similar threatening action in response to alleged intellectual property theft (read: China's $50B Tariff Backlash Puts These ETF Areas in Focus).

The second-largest economy has already slapped a duty on 128 American food products, including meat, fruit, pork, dried fruits, wine and aluminum scrap, worth $3 billion effective Apr 2 in retaliation against Trump’s severe tariff of 24% on steel and 10% on aluminum imports.

The round of sanctions and retaliation could trigger a global trade war, hurting the worldwide economy and corporate profits, particularly at big U.S. exporters. This could lead to tumultuous trading across all the market caps. As such, investors could ride out the downbeat sentiments through inverse ETFs. While there are several options available in the space, we have highlighted five such ETFs that are widely spread across a number of sectors and are not concentrated on a particular sector or industry.

These products have provided handsome returns over the trailing one-month period and are expected to do so, especially if the current trends persist in the months ahead. Also, these are unleveraged products having a lower risk level.

ProShares Short QQQ PSQ

This fund seeks to deliver inverse exposure to the daily performance of the Nasdaq-100 Index. It has amassed $368.2 million and trades in heavy volume of 1.2 million shares per day. It charges 95 bps in fees per year and has gained about 5% in the trailing one-month period (read: China Retaliates: ETFs & Stocks on Radar).

ProShares Short S&P500 ETF SH

This fund provides inverse exposure to the daily performance of the S&P 500 index. It is the most popular and liquid ETF in the inverse equity space with AUM of nearly $1.5 billion and average daily volume of around 4 million shares. The fund charges 89 bps in annual fees and has added 2.5% in the same period.

ProShares Short Dow 30 ETF DOG

This product seeks to deliver inverse exposure to the daily performance of the Dow Jones Industrial Average, which includes the 30 blue chip companies. The fund has managed $262.9 million in its asset base while charging 95 bps in fees and expenses. Volume is solid as it exchanges 1.3 million shares per day on average. DOG is up 1.4% in the past month.  

ProShares Short Russell 2000 ETF RWM

This fund seeks to deliver inverse exposure to the daily performance of the Russell 2000 Index. The fund has amassed $298.7 million and trades in good volume of 371,000 shares per day. It charges 95 bps in fees per year and gained 1.5% in the trailing one-month period (read: Focus on Small-Cap ETFs Amid Trade War Fears).

ProShares Short MidCap400 MYY

This ETF targets the mid-cap segment of the broad U.S. equity market from the bearish perspective. This is done by tracking the inverse performance of the S&P MidCap 400 Index. The fund is less popular and less liquid with AUM of $12 million and average daily volume of roughly 31,000 shares. Expense ratio comes in at 0.95%. MYY is up 0.8% in the same period.

Bottom Line

As a caveat, investors should note that such products are suitable only for short-term traders as these are rebalanced on a daily basis (see: all the Inverse Equity ETFs here).

Still, for ETF investors who are bearish on the equity market for the near term, either of the above products could make an interesting choice. Clearly, a near-term short could be intriguing for those with high-risk tolerance, and a belief that the “trend is the friend” in this corner of the investing world.

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PRO-SHRT QQQ (PSQ): ETF Research Reports
SPECIALTY - HEA (SH): ETF Research Reports
PRO-SHRT DOW30 (DOG): ETF Research Reports
PRO-SHRT MC400 (MYY): ETF Research Reports
PRO-SHRT R2000 (RWM): ETF Research Reports
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