Inverse ETFs To Consider On Market Turmoil

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August 24, 2015 5:10pm NYSE:CHAD NYSE:DOG

inverseThough the U.S. stock market rode past the nagging Greek debt drama in July, occasional sell-offs in China and severely low oil prices this year, it lost steam in recent sessions.


A wavering Chinese economy and the consequent burst of Chinese stock bubbles on the one hand and dimmed chances of the Fed’s sooner-than-expected policy tightening on the other flared up global growth worries and led the markets go into a tailspin.

In China, trading has been rocky for long. The Chinese policy makers devalued the currency yuan by 2% presumably to maintain export competitiveness, on August 11. While this hinted at a deepening economic crisis, the release of the flash Chinese manufacturing data (for August) which indicated a six-and-a-half year low number was the final nail in the coffin.

Though China sought to restrain the rout by allowed the pension funds to invest about $97 billion in the market, there was no relief in store. Uncertainty in China and lack of precision by the Fed on policy tightening timeline roiled the market momentum and ravaged most risky asset classes.

Most importantly, oil prices slipped below $40/barrel on concerns over reduced demand. All these wrecked havoc on global equities and commodities.

As per Bank of America Merrill Lynch, equity outflows touched a 15-week high. U.S. Stock-Index futures recorded the deepest weekly plunge in four years in the week ended August 21, 2015.

The S&P 500 index is now down 7.6% from its May high and Dow Jones Industrial Average plummeted about 10.3% since it hit a high in May thanks mainly to a freefall in oil prices. NASDAQ Composite also slipped 10% from this year’s high touched in July.

Persuaded by the Chinese market carnage, Asian stocks approached a three-year low, commodity prices dived to a 16-year low, while credit risk in Asia rose to the highest level since March 2014. Emerging market equity funds witnessed a flight of capital worth over $6 billion and remained in red for seven straight weeks.

Equity market correction this time looks graver as the sentiment has turned more bearish of late due to heightened uncertainty and a slew of negative news in Europe and Japan too.

Japan’s Q2 GDP data was downbeat while an imminent snap election in Greece, the epicenter of the Euro zone debt crisis, has increased the risk of volatility in the coming days.

Notably, the CBOE Volatility Index (VIX), a fear gauge which measures investor perception of the market’s risk, added over 27% in the last five trading sessions (as of August 21, 2015).

While there are several options available in the inverse equity ETFs space, we have highlighted five ETFs that are widely spread across geographies and sectors.

These products provided handsome returns over the trailing five-days and one-month period and are expected to continue doing so, especially if the current bearishness persists in the months ahead.

ProShares Short Dow 30 ETF (NYSEARCA:DOG)

This product seeks to deliver inverse exposure to the daily performance of the Dow Jones Industrial Average, which includes the 30 blue chip companies. The fund has managed $311 million in its asset base while charging 95 bps in fees and expenses. Volume is moderate as it exchanges more than 700,000 shares per day on average. DOG gained over 5.8% over the past one week and 7.8% in the last one-month frame (as of August 21, 2015).

ProShares Short QQQ (NYSEARCA:PSQ)

The fund looks to track the inverse of the day performance of 100 largest domestic and international non-financial companies listed on the tech-heavy NASDAQ. This $277 million-product charges 95 bps in fees and added 7.5% in the last five trading sessions and 9.4% in the last one month (as of August 21, 2015).

ProShares Short S&P500 ETF (NYSEARCA:SH)

This fund provides inverse exposure to the daily performance of the S&P 500 index. It is the most popular and liquid ETF in the inverse equity space with AUM of nearly $1.7 billion and average daily volume of around 3.6 million shares. The fund charges 90 bps in annual fees and added nearly 5.3% in the last five trading sessions and 6.7% in the last one month (as of August 21, 2015).

ProShares Short MSCI Emerging Markets (NYSEARCA:EUM)

Since the recent upheaval was global, a look at the emerging markets is warranted. The product seeks to track the opposite of the daily performance of the MSCI Emerging Markets Index. This $461.4-million product trades at volumes of 600,000 shares a day and charges 95 bps in fees. EUM was up 6.7% in the last five days and 15.5% in the last one month.

Daily CSI 300 China A Share Bear 1x Shares (NYSEARCA:CHAD)

As China was the root cause of this massacre, the region offers immense scope to gain via inverses equity ETFs. Having debuted in June 2015, CHAD seeks daily investment results of 100% of the inverse of the performance of the CSI 300 Index. The index is market cap weighted and comprises the largest and most liquid stocks in the Chinese A-share market.

Barely a few days old, the fund has already amassed over $320 million in assets. The fund charges 95 bps in fees and was up about 16% in the last five days. Over the last one month, the fund added over 15%.

This article is brought to you courtesy of Zacks.


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