We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
5 Inverse ETFs to Tap Worsening Russia-Ukraine Tension
Read MoreHide Full Article
The Russia-Ukraine tensions are weighing on investors’ sentiment and have pushed the major U.S. indices toward back-to-back weekly losses. The crisis intensified with the latest move by Russia’s president Vladimir Putin that could unleash a major war with the West.
Given this, investors are betting that the recent pain in the stock market will intensify and are thus loading up ETFs against the market surge. Short sellers are adding to their positions against the SPDR S&P 500 ETF Trust (SPY - Free Report) , which tracks the broad U.S. stock index, at the fastest rate in nearly a year. Other investors are buying options contracts at a record pace that would pay out if the recent declines in the stock worsen (read: Russia-Ukraine Tensions Flare Up: ETF Strategies to Win).
This has resulted in a spike for inverse or inverse leveraged ETFs as these have fetched outsized returns on quick market turns in a short span. While there are several options in the space, we highlight five ETFs that could be compelling choices to play the current market trends. These include ProShares UltraPro Short S&P500 (SPXU - Free Report) , ProShares UltraPro Short QQQ (SQQQ - Free Report) , UltraPro Short Russell2000 (SRTY - Free Report) , Daily Dow Jones Internet Bear 3X Shares (WEBS - Free Report) , and ProShares UltraPro Short Dow30 (SDOW - Free Report) .
Inverse and inverse-leveraged ETFs either create a an inverse short position or a leveraged inverse short position in the underlying index through the use of swaps, options, future contracts and other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a very short period of time provided the trend prevails.
Tension Worsens
U.S. President Joe Biden announced the first wave of sanctions against Russia, targeting Russia’s elite banks and sovereign debt, and promised more if there are further incursions into Ukraine. The United Kingdom has also started imposing economic sanctions against five Russian banks and three wealthy individuals. Meanwhile, the European Union has also signalled that they are ready to impose further penalties unless Putin changes course. Germany halted a major gas pipeline project, Nord Stream 2, from Russia.
The stock market was already under pressure due to the Fed rate hike bets as soon as March. Now, the latest escalation in the Russia-Ukraine conflict has pushed the S&P 500 Index into the correction territory with a 10% plunge from the January record (read: 5 Low-Volatility ETFs to Bet on Rising Worries).
ProShares UltraPro Short S&P500 provides three times inverse exposure to the S&P 500 Index. It charges an annual fees of 90 bps per year.
ProShares UltraPro Short S&P500 trades in solid volume, exchanging around 21.3 million shares per day on average. It has amassed $591.6 million in its asset base.
ProShares UltraPro Short QQQ provides three times inverse exposure to the daily performance of the Nasdaq-100 Index, charging 95 bps in annual fees. The index measures the performance of the 100 largest domestic and international non-financial companies listed on The Nasdaq Stock Market based on market capitalization.
ProShares UltraPro Short QQQ has AUM of $2.7 billion and trades in an average daily volume of about 48.5 million shares.
ProShares UltraPro Short Russell2000 targets the small-cap segment of the broad stock market, offering three times inverse exposure to the performance of the Russell 2000 Index.
With AUM of $188.4 million, ProShares UltraPro Short Russell2000 has an expense ratio of 0.95% and trades in an average daily volume of 1.9 million shares.
Daily Dow Jones Internet Bear 3X Shares (WEBS - Free Report)
Daily Dow Jones Internet Bear 3X Shares provides a three times inverse play on the Internet corner of the broad technology sector by tracking the Dow Jones Internet Composite Index.
Daily Dow Jones Internet Bear 3X Shares has attracted $13.8 million in its asset base and charges 95 bps in annual fees. The ETF sees an average daily volume of about 136,000 shares (see: all the Inverse Equity ETFs here).
ProShares UltraPro Short Dow30 provides three times inverse exposure to the daily performance of the Dow Jones Industrial Average.
ProShares UltraPro Short Dow30 has AUM of $351.7 million and trades in an average daily volume of about 136,000 shares. It charges 95 bps per year.
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. Their performance could vary significantly from the actual performance of their underlying index over a longer period when compared to a shorter period (such as, weeks or months). Further, liquidity can be a big problem as it can make the products more expensive than what they appear.
Still, for ETF investors, who are bearish on equities for the near term, either of the above products could make an interesting choice. These could be attractive for those with high-risk tolerance and believe that the “trend is the friend” in this specific corner of the investing world.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
5 Inverse ETFs to Tap Worsening Russia-Ukraine Tension
The Russia-Ukraine tensions are weighing on investors’ sentiment and have pushed the major U.S. indices toward back-to-back weekly losses. The crisis intensified with the latest move by Russia’s president Vladimir Putin that could unleash a major war with the West.
Given this, investors are betting that the recent pain in the stock market will intensify and are thus loading up ETFs against the market surge. Short sellers are adding to their positions against the SPDR S&P 500 ETF Trust (SPY - Free Report) , which tracks the broad U.S. stock index, at the fastest rate in nearly a year. Other investors are buying options contracts at a record pace that would pay out if the recent declines in the stock worsen (read: Russia-Ukraine Tensions Flare Up: ETF Strategies to Win).
This has resulted in a spike for inverse or inverse leveraged ETFs as these have fetched outsized returns on quick market turns in a short span. While there are several options in the space, we highlight five ETFs that could be compelling choices to play the current market trends. These include ProShares UltraPro Short S&P500 (SPXU - Free Report) , ProShares UltraPro Short QQQ (SQQQ - Free Report) , UltraPro Short Russell2000 (SRTY - Free Report) , Daily Dow Jones Internet Bear 3X Shares (WEBS - Free Report) , and ProShares UltraPro Short Dow30 (SDOW - Free Report) .
Inverse and inverse-leveraged ETFs either create a an inverse short position or a leveraged inverse short position in the underlying index through the use of swaps, options, future contracts and other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a very short period of time provided the trend prevails.
Tension Worsens
U.S. President Joe Biden announced the first wave of sanctions against Russia, targeting Russia’s elite banks and sovereign debt, and promised more if there are further incursions into Ukraine. The United Kingdom has also started imposing economic sanctions against five Russian banks and three wealthy individuals. Meanwhile, the European Union has also signalled that they are ready to impose further penalties unless Putin changes course. Germany halted a major gas pipeline project, Nord Stream 2, from Russia.
The stock market was already under pressure due to the Fed rate hike bets as soon as March. Now, the latest escalation in the Russia-Ukraine conflict has pushed the S&P 500 Index into the correction territory with a 10% plunge from the January record (read: 5 Low-Volatility ETFs to Bet on Rising Worries).
ProShares UltraPro Short S&P500 (SPXU - Free Report)
ProShares UltraPro Short S&P500 provides three times inverse exposure to the S&P 500 Index. It charges an annual fees of 90 bps per year.
ProShares UltraPro Short S&P500 trades in solid volume, exchanging around 21.3 million shares per day on average. It has amassed $591.6 million in its asset base.
ProShares UltraPro Short QQQ (SQQQ - Free Report)
ProShares UltraPro Short QQQ provides three times inverse exposure to the daily performance of the Nasdaq-100 Index, charging 95 bps in annual fees. The index measures the performance of the 100 largest domestic and international non-financial companies listed on The Nasdaq Stock Market based on market capitalization.
ProShares UltraPro Short QQQ has AUM of $2.7 billion and trades in an average daily volume of about 48.5 million shares.
ProShares UltraPro Short Russell2000 (SRTY - Free Report)
ProShares UltraPro Short Russell2000 targets the small-cap segment of the broad stock market, offering three times inverse exposure to the performance of the Russell 2000 Index.
With AUM of $188.4 million, ProShares UltraPro Short Russell2000 has an expense ratio of 0.95% and trades in an average daily volume of 1.9 million shares.
Daily Dow Jones Internet Bear 3X Shares (WEBS - Free Report)
Daily Dow Jones Internet Bear 3X Shares provides a three times inverse play on the Internet corner of the broad technology sector by tracking the Dow Jones Internet Composite Index.
Daily Dow Jones Internet Bear 3X Shares has attracted $13.8 million in its asset base and charges 95 bps in annual fees. The ETF sees an average daily volume of about 136,000 shares (see: all the Inverse Equity ETFs here).
ProShares UltraPro Short Dow30 (SDOW - Free Report)
ProShares UltraPro Short Dow30 provides three times inverse exposure to the daily performance of the Dow Jones Industrial Average.
ProShares UltraPro Short Dow30 has AUM of $351.7 million and trades in an average daily volume of about 136,000 shares. It charges 95 bps per year.
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. Their performance could vary significantly from the actual performance of their underlying index over a longer period when compared to a shorter period (such as, weeks or months). Further, liquidity can be a big problem as it can make the products more expensive than what they appear.
Still, for ETF investors, who are bearish on equities for the near term, either of the above products could make an interesting choice. These could be attractive for those with high-risk tolerance and believe that the “trend is the friend” in this specific corner of the investing world.