7 Inverse ETFs That Soared More Than 70% in Q4
After registering its best-third quarter gain in many years, Wall Street finds itself in a vicious cycle in the final quarter, placing all the three indices into the correction territory. Higher interest rates in the United States, political malaise in Europe, U.S.-China trade woes, slowdown in Japan and emerging markets and threats of global slowdown have created tensions in the equity world.
Oil has slipped into the bear territory leading to further caution among investors. Additionally, the lower-than-expected Fed’s dovish view for the next year in the latest FOMC meeting also made investors jittery. Further, technology, once a hot and soaring segment, dragged down the broader market in recent months, triggered by rounds of selling in FAANG stocks and other big giants (read: Forget FAANGs, Invest in These Tech ETFs Instead).
With the recent slump, the S&P 500 is on track for its first annual loss in a decade while the Dow Jones is expected to log its worst year since 2008.
The myriad woes have resulted in huge demand for inverse or leveraged inverse ETFs for investors seeking to make big gains in a short span. These products either create an inverse (opposite) position or leveraged (2x or 3x) inverse position in the underlying index through the use of swaps, options, future contracts and other financial instruments (read: Inverse & Leveraged ETFs: What Investors Need to Know).
In fact, many products have generated outsized gains (over 70%) so far in the fourth quarter though these involve a great deal of risk when compared to traditional products. Below, we have highlighted some ETFs that crushed the market and should continue doing so at least for the near term if the same trends persist.
Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 3X Shares DRIP – Up 245.2%
This fund seeks three times inverse exposure of the performance of the S&P Oil & Gas Exploration & Production Select Industry Index. DRIP has accumulated $42.6 million in its asset base and trades in a solid volume of around 5 million shares a day on average. The fund charges 95 bps in annual fees (read: Oil in Bear Market: Leveraged ETFs to Gain From).
Direxion Daily Natural Gas Related Bear 3X Shares GASX – Up 175%
This product provides three times inverse exposure to the ISE-Revere Natural Gas Index. It has amassed $6.3 million in its asset base and trades in solid volume of 24,000 shares a day on average. The ETF charges 95 bps in fees per year.
Direxion Daily Energy Bear 3x Shares ETF ERY – Up 99%
This product provides three times inverse exposure to the Energy Select Sector Index. It has AUM of $25.8 million and trades in good volume nearly 385,000 shares. The ETF charges annual fee of 95 bps.
Direxion Daily Regional Banks Bear 3x Shares WDRW – Up 98.9%
This ETF seeks to deliver thrice the inverse return of the S&P Regional Banks Select Industry Index, charging 95 bps in fees per year. WDRW has accumulated $5.1 million in its asset base and trades in a paltry volume of around 2,000 shares a day on average (read: Profit From Bearish Financial Sector With Inverse ETFs).
Direxion Daily S&P Biotech Bear 3x Shares LABD – Up 93%
This product seeks to deliver three times the inverse daily performance of the S&P Biotechnology Select Industry Index. The fund has amassed $46.2 million in its asset base and average daily volume of around 1.7 million shares. It charges investors 95 bps in annual fees and expenses.
Direxion Daily Small Cap Bear 3x Shares TZA – Up 84.9%
This product provides three times inverse exposure to the Russell 2000 Index, charging 95 bps in fees and expenses. It has been able to manage $345.6 million in its asset base with heavy average daily volume of 12.2 million shares (read: How To Profit From Market Volatility Using Inverse & Leveraged ETFs).
Direxion Daily Mid Cap Bear 3X Shares MIDZ – Up 69.4%
This ETF provides three times inverse exposure to the S&P MidCap 400 Index. It charges 0.95% in annual fees and trades in average daily volume of 17,000 shares. It has managed $5.6 million in its asset base.
Bottom Line
As a caveat, investors should note that such products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing – when combined with leverage – may force these products to deviate significantly from the expected long-term performance figures (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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DIRX-SC BEAR 3X (TZA): ETF Research Reports
DIR-EGY BEAR 3X (ERY): ETF Research Reports
DIRX-D SP OG BR (DRIP): ETF Research Reports
DIRX-D SP BBEAR (LABD): ETF Research Reports
DIR-D NG BR3X (GASX): ETF Research Reports
DIRX-MC BEAR 3X (MIDZ): ETF Research Reports
DIR-D RG BK BR3 (WDRW): ETF Research Reports
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