ETFs For Your Inner Bear (BTAL, DGAZ, HDGE, UNG)

Jared Cummans:  With markets rallying to start off the year, posting their best quarter in several years, some investors are beginning to grow anxious. Many are nervous that major benchmarks like the S&P 500, which has gained nearly 12% on the year, will be unable to sustain this level of appreciation, and will be forced down over the coming months. Now that Fed Chair Ben Bernanke has publicly stated that the economy needs to grow quicker to keep the unemployment rate down, many are calling for markets to endure a pullback in the second quarter [see also ETFs That Should Be Commission Free But Aren’t].

For those who do feel that a bear market is on the way, there are a number of products available to make a play against equities. Below, we outline three ETFs that could help investors to make a bet against varying corners of the market.

U.S. Market Neutral Anti-Beta Fund (NYSEARCA:BTAL)

This ETF, which debuted late last year, has one of the most unique strategies in the space. BTAL essentially takes long positions in low beta stocks while shorting high beta stocks. That strategy does not fare very well in strong markets, as the high beta firms generally perform very well, turning the short positions sour. But when markets begin to recede, high beta stocks will be at the forefront of losses, while low beta stocks will have relatively mild losses or may even remain flat. Therefore, this fund stands to gain during market crashes and dips, making it a perfect option for those looking to bet against general equities. Note that the fund charges 81 basis points for investing, a rather high expense ratio, but you are paying for a strategy that would likely be far more complex and expensive to implement on your own [see also 3 ETFs For The End Of Operation Twist].

3x Inverse Natural Gas ETN (NYSEARCA:DGAZ)

For the past few years, investors have been frustrated by the performance of the United States Natural Gas Fund (NYSEARCA:UNG) as well as the underlying commodity itself. After watching UNG lose nearly 80% of its value since inception as well as being forced to reverse split twice, it seems that a bet against UNG and natural gas has the potential for plenty of profit. Until recently, however, this exposure was unavailable in the ETF space. That changed in February, when VelocityShares launched this ETN, which applies a 3X inverse leverage to natural gas futures. Note that DGAZ’s front month strategy also allows it to profit from contango as long as it exists in the natural gas futures market. Though this is still a young product, its return of over 73% in the trailing month certainly makes for an enticing buy [see also 25 Ways To Invest In Natural Gas].


HDGE is another product with a compelling strategy. The fund is actively managed and takes short positions in various assets, as it aims to pick out securities that are poised to drop. The fund is managed in a relatively unique way, as investors can see the entire holdings of the fund (updated daily) on the home page for the ETF. HDGE made its debut just over a year ago and already has $172 million in aggregate assets as well as a daily volume of around 215,000. Obviously strong markets on the year have dug a hole for this fund, but looking back to last August’s bear run, HDGE performed just how it was supposed to, jumping roughly 32% from July to September. For those who believe that a bear market is around the corner, this is one of your best options for making a play [see alsoThe 18 Most Successful New ETFs Of 2011].

Written By Jared Cummans From ETF Database  

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