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Time to Short U.S. Equities with ETFs?

The broader market may remain sturdy, volatility levels may be hovering around the decade-low levels, but a trend of aversion in U.S. equities is building lately. Overvaluation concerns have long been a botheration to many investors (read: Dow at Record High: More Upside for ETFs?).

No matter how highs U.S. markets have hit lately, stock market gurus are more concerned about the lack of 5% declines in the market—“an occurrence that isn’t unusual in a normal market environment,” as per an article published on MarketWatch.

To add to this, President Donald Trump’s incendiary rhetoric on North Korea’s nuclear threat halted the market rally lately. Notably, the CBOE Volatility Index jumped the most in five weeks on August 8. The S&P 500 fell the most in the month.

Investors Are Cautious About the Rally

As per billionaire investor Howard Marks, “the Shiller Cyclically Adjusted PE Ratio, known as the Shiller CAPE, is at its highest level since only two other times in the market’s history.” Just before the Great Depression in 1929 and mid-1997 to mid-2001 the CAPE ratio was at higher levels than we are seeing now.

The same was the view of Jeffrey Gundlach's DoubleLine Capital, which bought “some five-month put options on the Standard & Poor's 500 Index” as the CBOE Volatility Index is “ridiculously low” (read: Will Gold ETFs Shine in August?).

U.S. Equities Losing Assets

On August 8, U.S. equities shed about $1.22 billion in assets, as per etf.com. Among the key losers in the U.S. equity ETF universe on August 8, SPDR S&P 500 ETF Trust SPY, PowerShares QQQ Trust QQQ, iShares Russell 2000 ETF IWM, Financial Select Sector SPDR Fund XLF, iShares Russell 1000 Value ETF IWD and Technology Select Sector SPDR Fund XLK lost about $1.20 billion, $238.4 million, $126.4 million, $115.4 million, $82.1 million and $81.1 million, respectively, in assets.

Investors shifted their focus toward safe-haven trades as evident by 1.5% gains in the gold ETF SPDR Gold Trust GLD in the last two days (as of August 9, 2017). etf.com data showed that investors added about $79.7 million in alternative ETFs as a part of hedging against market volatility while U.S. Fixed Income ETFs garnered about $333 million in assets (read: 6 ETFs for a Historically Low August).

Inverse ETFs in Focus

All these worries may keep the stock market volatile. Investors can ride out this volatility through inverse ETFs. While there are several options available in the space, we have highlighted five ETFs that are widely spread across a number of sectors and not concentrated on a particular sector or industry (read: Play These Inverse ETFs if Markets Turn Rocky).

ETFs to Play

Short S&P500 ETF SH

This fund provides unleveraged inverse exposure to the daily performance of the S&P 500 index.

Direxion Daily S&P 500 Bear 1x Shares ETF SPDN

The fund seeks daily investment results of 100% of the inverse (or opposite) of the performance of the S&P 500 Index.

Ranger Equity Bear ETF HDGE

This ETF is active and does not track a benchmark. Its objective is capital appreciation through short sales of domestically traded equity securities.


It offers inverse unleveraged exposure to the NASDAQ-100 Index.

ProShares Short Russell2000 RWM

The underlying Russell 2000 Index consists of 2,000 of the smallest U.S.-domiciled, publicly traded common stocks.

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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SPDR-TECH SELS (XLK): ETF Research Reports
NASDAQ-100 SHRS (QQQ): ETF Research Reports
GOLD (LONDON P (GLD): ETF Research Reports
SPDR-SP 500 TR (SPY): ETF Research Reports
ISHARS-R 2000 (IWM): ETF Research Reports
SPDR-FINL SELS (XLF): ETF Research Reports
PRO-SHRT QQQ (PSQ): ETF Research Reports
ACTIVE-BEAR (HDGE): ETF Research Reports
SPECIALTY - HEA (SH): ETF Research Reports
DIR-D SP5 BR (SPDN): ETF Research Reports
ISHARS-RS 1K VL (IWD): ETF Research Reports
PRO-SHRT R2000 (RWM): ETF Research Reports
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