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Markets in Red: Invest in Inverse ETFs for Solid Returns

Sanghamitra Saha

Wall Street, which had a pretty strong start to this year, was hit by recessionary fears on Friday. Per Refinitiv Tradeweb data, the spread between the three-month Treasury bill and the 10-year note rate turned negative — though briefly — for the first time since 2007, per CNBC.com. This increased fears of a recession in the United States. Also, global growth worries have been a nagging concern for quite some time.

SPDR S&P 500 ETF SPY, SPDR Dow Jones Industrial Average ETF DIA, Invesco QQQ Trust QQQ and iShares MSCI ACWI ETF ACWI lost about 1.9%, 1.8%, 2.2% and 2.1% on Mar 22.

We also believe that overvaluation concerns caused this sharp selloff. Market was “up about 20 percent from Christmas Eve’s bottom”, thus calling for some correction amid the Brexit drama, Chinese economic slowdown and prevalent global growth issues.

How to Profit

Given the upheaval, investors could easily tap the opportunity by going short on global equities, at least for the near term. Below we highlight a few of them.

Dow Jones

Investors intending to play against the tumbling Dow Jones, may tap ProShares Short Dow 30 DOG (up 1.8% on Mar 22), ProShares UltraShort Dow30 DXD (up 3.5% on Mar 22) and ProShares UltraPro Short Dow30 SDOW (up 5.3% on Mar 22).

S&P 500

Investors can go against the S&P 500 with ProShares Short S&P500 ETF SH (up 1.9% on Mar 22) and Direxion Daily S&P 500 Bear 1X Shares SPDN (up 1.3% on Mar 22).

Nasdaq

ProShares Short QQQ PSQ (up 2.2% on Mar 22), ProShares UltraShort QQQ  ">QID )  (up 4.4% on Mar 22) and ProShares UltraPro Short QQQ SQQQ (up 6.7% on Mar 22) are good to play against the Nasdaq.

Small-Cap

One can short small-cap U.S. equities with ProShares Short Small Cap 600 SBB (up 3.5% on Mar 22), ProShares Short Russell2000 RWM (up 3.6% on Mar 22) and ProShares UltraPro Short Russell2000 SRTY (up 11.1% on Mar 22).

Financials

Financial stocks took a jump amid yield curve concerns.  ProShares Short Financials ETF SEF (up 2.1% on Mar 22), ProShares UltraShort Financials SKF (up 4.5%) and ProShares UltraPro Short Financial Select Sector ETF FINZ (up 8.3%) are the ways to tap this drop.

EAFE

ProShares Short MSCI EAFE EFZ (up 2.2% on Mar 22) could be a good way to short stocks from the EAFE region and avoid the spillover effect of global recessionary fear.

Emerging Market

The Wall Street selloff has definitely hurt emerging markets — a volatile corner. In fact, Turkey’s lira was one of the worst performers against the greenback on Mar 22. For this segment, investors have inverse ETF options like Direxion Daily Emerging Markets Bear 3X Shares EDZ (up 8.8% on Mar 22) and Short MSCI Emerging Markets ProShares EUM (up 3% on Mar 22).

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).
 
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ProShares UltraPro Short Financial Select Sector (FINZ): ETF Research Reports
 
SPDR Dow Jones Industrial Average ETF (DIA): ETF Research Reports
 
ProShares UltraPro Short Russell2000 (SRTY): ETF Research Reports
 
Direxion Daily MSCI Emerging Markets Bear 3x Shares (EDZ): ETF Research Reports
 
ProShares Short MSCI EAFE (EFZ): ETF Research Reports
 
ProShares Short S&P500 (SH): ETF Research Reports
 
Proshares Short QQQ (PSQ): ETF Research Reports
 
ProShares UltraPro Short QQQ (SQQQ): ETF Research Reports
 
Direxion Daily S&P 500 Bear 1X Shares (SPDN): ETF Research Reports
 
ProShares UltraPro Short Dow30 (SDOW): ETF Research Reports
 
Proshares Short Financials (SEF): ETF Research Reports
 
ProShares Short SmallCap600 (SBB): ETF Research Reports
 
iShares MSCI ACWI ETF (ACWI): ETF Research Reports
 
Proshares Short Dow30 (DOG): ETF Research Reports
 
ProShares UltraShort Financials (SKF): ETF Research Reports
 
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Zacks Investment Research
 
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