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Time to Short Nasdaq With These Inverse ETFs?

·3 min read

The Nasdaq, heavy on technology and growth stocks, retreated more than 2.8% on Sep 28, marking its worst day since March. Rising rate worries are responsible for this slump. Benchmark U.S. treasury yield jumped to 1.54% (its highest level since June) on Sep 28 from this month’s low of 1.28% recorded on Sep 14 on the Fed taper cues.

Federal Reserve Chair Jerome Powell said the central bank could start scaling back asset purchases as soon as November and finish the process by mid-2022. Several officials are even interested to hike interest rates next year.

The announcement of the Fed QE taper may come in the policy gathering on Nov 2-3. However, the Fed chair Powell left the door open to waiting longer should the need be and stressed that tapering is not directly corelated with the timing of rate liftoff.

Plus, a downbeat consumer confidence report in September added to the risk-off mood in markets, with the Conference Board's closely watched Consumer Confidence Index slumping to the lowest level since February as concerns over the coronavirus continued to play foul. Overall, the rise in the rates have weighed on growth stocks.

"Really what you're seeing is, across asset classes, the market [is adopting] a pro-cyclical view, which means better growth in the future, higher inflation, higher bond yields," Tom Essaye, The Sevens Report Research Founder, told Yahoo Finance Live.

Since the growth sector relies on easy borrowing for superior growth and its value depends heavily on future earnings, a rise in long-term yields cuts the present value of companies’ future earnings. Given the sluggish backdrop, bearish investors may want to go near-term short on the Nasdaq- 100 Index. Below we highlight the inverse Nasdaq ETFs and some of the key differences among them:

ETFs in Focus

ProShares UltraPro Short QQQ SQQQ

The ProShares UltraPro Short QQQ seeks daily investment results, before fees and expenses, that correspond to triple the inverse of the daily performance of the NASDAQ-100 Index. The fund charges 95 bps in fees. The fund has an asset base of $1.61 billion (read: 10 Most Heavily Traded ETFs of Third Quarter).

ProShares Short QQQ PSQ

The ProShares Short QQQ seeks daily investment results, before fees and expenses, that correspond to the inverse of the daily performance of the NASDAQ-100 Index. The fund charges 95 bps in fees. The fund has an asset base of $593.3 million.

ProShares UltraShort QQQ QID

This ETF provides two times inverse exposure to the Nasdaq-100 Index.  It charges 0.95% in annual fees. It manages $218.5 million in its asset base.

Bottom Line

While the strategy is highly beneficial for short-term traders, it could lead to huge losses compared with traditional funds in fluctuating markets. Further, their performance could vary significantly from the actual performance of the underlying index over the longer period compared to a shorter period (such as, weeks or months).

 

 

 

 


 


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Proshares Short QQQ (PSQ): ETF Research Reports
 
ProShares UltraPro Short QQQ (SQQQ): ETF Research Reports
 
ProShares UltraShort QQQ (QID): ETF Research Reports
 
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