Four Inverse ETFs That Soared In July

August 3, 2015 5:26pm NYSE:DUST NYSE:DWTI

inverseSweta Killa:  July was an extremely volatile month for the U.S. stock market due to the Greek debt drama and Grexit worries, China meltdown, selloff in commodities and mixed economic data that raised concerns of a global slowdown.


Despite a myriad of woes, the major bourses on the U.S. managed to record their monthly gains.

The tech-heavy Nasdaq Composite index outperformed with a 2.8% rise last month. The S&P 500 gained 2% while Dow Jones Industrial Average added 0.4%. Trading volume was also impressive as it was 7.5% above the five-year July average. Among the sectors, utilities was the star performer as a drop in Treasury yields rekindled the appeal for dividend paying stocks. Further, technology and consumer shares saw smooth trading, each having gained 2.2% in the month.

While the equity world has performed quite well, commodities like gold and oil were trapped in the nastiest downward spiral. This is especially true as crude oil lost nearly 21% in July, the worst month since October 2008, and gold tumbled 6.5%, the biggest monthly drop since June 2013.

Given higher volatility, inverse or leveraged inverse ETFs gained immense popularity last month as investors embraced these products for big gains in a short span. In fact, many products provided outsized gains (over 50%) last month, though these involve a great deal of risk when compared to traditional products. Below, we have highlighted four such ETFs that crushed the market last month and should continue to do so at least for the near term if the global sentiments remain volatile.

These products either create an inverse long/short position or leveraged inverse long/short position in the underlying index through the use of swaps, options, future contracts and other financial instruments.

Direxion Daily Gold Miners Index Bear 3x Shares (NYSEARCA:DUST)

This product seeks to deliver thrice (3x or 300%) the inverse (opposite) daily performance of the NYSE Arca Gold Miners Index, which consists of firms that operate globally in both developed and emerging markets, and are involved primarily in the exploration and production of gold. More than half of the portfolio is dominated by the Canadian firms followed by the U.S. (16%) and South Africa (9%). The fund has amassed $172 million in its asset base and average daily volume of more than 7.3 million. It charges investors 95 bps in annual fees and expenses. The ETF surged nearly 85% in July.

VelocityShares 3x Inverse Crude ETN (NYSEARCA:DWTI)

This product provides three times inverse exposure to the daily performance of the S&P GSCI Crude Oil Index Excess Return. The ETN is a bit pricey as it charges 1.35% in annual fees while average daily volume is solid at 1.6 million shares. It has managed $162.3 million in its asset base and delivered whopping returns of over 68% last month.

Direxion Daily Junior Gold Miners Index Bear 3x Shares (NYSEARCA:JDST)

This fund seeks to deliver thrice the inverse performance of the Market Vectors Junior Gold Miners Index. The benchmark provides exposure to the largest and most liquid small-cap companies that derive more than half of their revenues from gold or silver mining. Considering the country profile, Canada takes the top spot at 57.5% while Australia (14.6%) and the U.S. (10.2%) round off to the next two spots. The ETF has accumulated $60.3 million in its AUM and charges 95 bps in annual fees. Average trading volume is solid, exchanging about 5.2 million shares a day in hand. The fund gained nearly 59% last month.

ProShares UltraShort Gold Miners ETF (NYSEARCA:GDXS)

Unlike the other two gold miner ETFs, this fund provides twice (2x or 200%) the inverse return of the NYSE Arca Gold Miners Index. Here again, Canadian firms dominate the fund’s return at 58% while Australia and U.S. round off to the next two spots with double-digit exposure each. The product is unpopular with AUM of around $1.9 million and sees paltry volume of 8,000 shares a day on average. Expense ratio came in at 0.95%. GDXS retuned nearly 53% in July.

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 deviate significantly from the expected long-term performance figures.

Still, for ETF investors who are bearish on the commodity or equities 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 your friend” in this corner of the investing world.

This article is brought to you courtesy of Sweta Killa.


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