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7 Inverse/Leveraged ETFs to Buy as Markets Make Way for Trump

Sweta Killa

After a close contest, Republican Donald Trump shockingly won the race to the White House. And as he readies himself as the 45th President of the United States, the markets will try to adjust to his ways (read: Prepare for a Trump Presidency With These Stocks & ETFs).

The majority of Wall Street analysts believe that the S&P 500 will see a big sell-off on Trump’s victory. Macroeconomic Advisers warned that a Trump win would wipe out 7% of the S&P 500’s market value, eroding more than $1 trillion of wealth. Strategists at Citigroup and JP Morgan expect a sell-off in the range of 3–5% while the S&P 500 index may nosedive as much as 13%, a per Barclays. The chief investment officer at BMO Private Bank in Chicago, forecast that U.S. stocks could drop as much as 10% over the next 10 sessions if Trump is elected.

This is because Trump’s unpredictable nature and anti-trade policies could result in complete chaos in the global economy, discouraging the Federal Reserve from raising interest rates in December. He has threatened to renegotiate or terminate the North American Free Trade Agreement – the free trade deal between Canada, Mexico and America – and has pledged to crack down on immigration. Further, Trump seeks to impose barriers in the United States on imports from countries such as Mexico and China, which could reduce trade flows and hurt global growth.

Market Impact

Trump’s victory rattled the global stock market, triggering a broad sell-off. The S&P 500, Dow Jones and Nasdaq 100 futures plunged as much as 5%, hitting safety breakers. This suggests that the stock market could suffer its biggest ever plunge when Wednesday’s trading session begins and could see its biggest percentage decline since August 2011 when a 5.5% plunge stemmed from the country’s credit rating downgrade news. However, the U.S. futures recovered to a certain extent (read: 7 Inverse ETFs to Play Election Uncertainty).

The U.S. dollar also suffered, plunging 2.6% against the yen and 1.65 against the Swiss franc. The Asian stock market plummeted in the day’s trading with Japan's Nikkei dropping 5.5% and the Hong Kong's Hang Seng index declining around 3%. Emerging markets and currencies were also shaken, with Mexican peso tumbling around 13% to an all-time low. This currency may in fact see its worst day since 1994. Turkish lira sank to an all-time low and the South African rand fell the most in four weeks.

Meanwhile, gold enjoyed its biggest daily rally since the Brexit vote, rising nearly 4% to above $1320 per ounce while Treasury bonds rallied with the 10-year yield moving down to 1.74% from 1.89%, indicating investors’ flight to safety (read: Does The Donald Hold The Trump Card for Gold ETFs?).

How to Play?

Given this, investors are seeking to make big gains in a short span, resulting in huge demand for inverse and leveraged ETFs. Below, we have highlighted seven of these that could benefit investors in a big way, though these involve a great deal of risk when compared to traditional products:

ProShares UltraPro Short S&P500 (SPXU): The fund provides three times (3x) inverse exposure to the S&P 500 index and charges 90 bps in fees per year.

Direxion Daily S&P 500 Bear 3x Shares (SPXS): Like SPXU, this product also provides three times inverse exposure to the S&P 500 index but comes with 5 bps higher fees.

ProShares UltraPro Short Dow30 (SDOW): This fund provides three times inverse exposure to the Dow Jones Industrial Average and charges 95 bps in fees per year.

ProShares UltraPro Short QQQ (SQQQ): This ETF provides three times inverse exposure to the Nasdaq-100 Index and charges 95 bps per year.

ProShares UltraShort MSCI Mexico Capped IMI ETF (SMK): This fund targets the Mexican stock market and offers two times (2x) the inverse of the daily performance of the MSCI Mexico IMI 25/50 Index. It charges 95 bps in annual fees (read: Mexico ETFs to Hinge on U.S. Presidential Election).

VelocityShares 3x Long Gold ETN (UGLD): This product provides three times exposure to the daily performance of the S&P GSCI Gold Index Excess Return plus returns from U.S. T-bills net of fees and expenses. The ETN charges a higher fee of 1.35% annually.

Direxion Daily 20+ Year Treasury Bull 3x Shares (TMF): This fund seeks to deliver three times exposure to the ICE U.S. Treasury 20+ Year Bond Index. It charges 95 bps in fees.

Bottom Line

As a caveat, investors should note that these 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 Inverse Equity ETFs here).

Still, these products could be intriguing for those with high-risk tolerance, and a belief that the “trend is the friend” in the specific corner of the investing world.

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