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.
After an astounding rally, Wall Street has been caught in feeble trading in the past week, triggered by the U.S. credit rating downgrade and now bank downgrades. Additionally, weak data from China and the United States added to the woes. The S&P 500 extended its decline this week after wrapping the worst week since March (read: 5 ETFs That Saw Inflows Last Week Amid Market Weakness).
This has resulted in huge demand for inverse or inverse-leveraged ETFs as these fetch outsized returns on bearish sentiments in a short span. We have highlighted the five best-leveraged inverse ETFs that piled up handsome gains over the past week amid the market turmoil. These, however, involve a great deal of risk compared to traditional products.
Ratings agency Moody's downgraded the credit ratings of several small to mid-sized U.S. banks and warned that it may downgrade some of the nation's biggest lenders too, citing a looming mild recession, higher interest rates and increased funding costs. The agency said that U.S. banks are contending with greater risks in managing their assets and liabilities.
The agency cut the ratings of 10 U.S. banks by one notch and placed some banking giants, including M&T Bank Corp., Webster Financial Corp., BOK Financial Corp., Old National Bancorp, Pinnacle Financial Partners Inc., and Fulton Financial Corp., on review for potential downgrades. Additionally, Moody’s changed its outlook to negative for 11 lenders, including PNC Financial Services Group, Capital One Financial Corp., Citizens Financial Group Inc., Fifth Third Bancorp, Regions Financial Corp., Ally Financial Inc., Bank OZK and Huntington Bancshares Inc.
Last week, Fitch Ratings downgraded the U.S. credit rating to AA+ from AAA, citing “expected fiscal deterioration over the next three years,” an erosion of governance and a growing general debt burden. This led to a strong sell-off in the stocks and a surge in yields. Notably, Treasury yields spiked to the highs of 2023 last week. The 10-year yields topped 4.12%, marking the highest level since November 2022, while 30-year yields reached their highest level in nearly nine months to about 4.2%.
Further, the latest data revealed that the red-hot U.S. job market is cooling down. The economy added lower-than-expected 187,000 jobs in July, pointing to a slowing economy after a series of interest rate hikes by the Federal Reserve. Together, June and July represented the two weakest monthly gains in two and a half years. Meanwhile, China trade data for July showed a worse-than-expected drop in imports and exports, pointing to falling demand overseas and in China (read: 4 Sector ETFs & Stocks to Play Despite Soft July Jobs Data).
Inverse ETFs
These products either create a short position or a leveraged short position in the underlying index through the use of swaps, options, futures contracts and other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a short period of time, provided the trend remains a friend.
However, these funds run the risk of huge losses compared to traditional ones in fluctuating or seesawing markets. Further, their performance could vary significantly from the actual performance of the underlying index over a longer period compared to a shorter period (such as weeks or months).
Direxion Daily S&P Biotech Bear 3x Shares seeks to deliver three times the inverse daily performance of the S&P Biotechnology Select Industry Index, which includes domestic companies from the biotechnology industry.
Direxion Daily S&P Biotech Bear 3x Shares has amassed $82.7 million in its asset base and has an average daily volume of around 5 million shares. LABD charges investors 95 bps in annual fees.
Direxion Daily Technology Bear 3x Shares provides three times inverse exposure to the daily performance of the Technology Select Sector Index (read: 5 Beaten-Down Tech ETFs to Buy).
Direxion Daily Technology Bear 3x Shares has amassed about $131.3 million in its asset base while charging 95 bps in fees per year from investors. Volume is solid as it exchanges around 3 million shares a day on average.
Direxion Daily Semiconductor Bear 3x Shares targets the semiconductor corner of the technology sector with three times inverse leveraged exposure to the ICE Semiconductor Index.
Direxion Daily Semiconductor Bear 3x Shares has amassed about $1 billion in its asset base while charging 89 bps in fees per year. Volume is good as it exchanges 66.7 million shares per day on average.
Daily S&P 500 High Beta Bear 3X Shares (HIBS - Free Report) – Up 11.6%
Daily S&P 500 High Beta Bear 3X Shares offers three times inverse exposure to the performance of the S&P 500 High Beta Index. It has gathered $48.2 million in AUM and trades in an average daily volume of 2 million shares.
Daily S&P 500 High Beta Bear 3X Shares charges 95 bps in fees per year from investors.
MicroSectors Gold Miners -3X Inverse Leveraged ETN seeks to offer three times inverse leveraged exposure to the S-Network MicroSectors Gold Miners Index.
MicroSectors Gold Miners -3X Inverse Leveraged ETN has accumulated $58.4 million in its asset base and trades in an average daily volume of 1 million shares. It charges 95 bps in annual fees.
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 (see: all the Inverse Equity ETFs here).
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 who 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
Inverse ETFs Soar as Market Turns Sour
After an astounding rally, Wall Street has been caught in feeble trading in the past week, triggered by the U.S. credit rating downgrade and now bank downgrades. Additionally, weak data from China and the United States added to the woes. The S&P 500 extended its decline this week after wrapping the worst week since March (read: 5 ETFs That Saw Inflows Last Week Amid Market Weakness).
This has resulted in huge demand for inverse or inverse-leveraged ETFs as these fetch outsized returns on bearish sentiments in a short span. We have highlighted the five best-leveraged inverse ETFs that piled up handsome gains over the past week amid the market turmoil. These, however, involve a great deal of risk compared to traditional products.
Direxion Daily S&P Biotech Bear 3x Shares (LABD - Free Report) , Direxion Daily Technology Bear 3x Shares (TECS - Free Report) , Direxion Daily Semiconductor Bear 3x Shares (SOXS - Free Report) , Daily S&P 500 High Beta Bear 3X Shares (HIBS - Free Report) and MicroSectors Gold Miners -3X Inverse Leveraged ETN (GDXD - Free Report) will remain investors’ darlings, provided the sentiments remain volatile.
What Happened?
Ratings agency Moody's downgraded the credit ratings of several small to mid-sized U.S. banks and warned that it may downgrade some of the nation's biggest lenders too, citing a looming mild recession, higher interest rates and increased funding costs. The agency said that U.S. banks are contending with greater risks in managing their assets and liabilities.
The agency cut the ratings of 10 U.S. banks by one notch and placed some banking giants, including M&T Bank Corp., Webster Financial Corp., BOK Financial Corp., Old National Bancorp, Pinnacle Financial Partners Inc., and Fulton Financial Corp., on review for potential downgrades. Additionally, Moody’s changed its outlook to negative for 11 lenders, including PNC Financial Services Group, Capital One Financial Corp., Citizens Financial Group Inc., Fifth Third Bancorp, Regions Financial Corp., Ally Financial Inc., Bank OZK and Huntington Bancshares Inc.
Last week, Fitch Ratings downgraded the U.S. credit rating to AA+ from AAA, citing “expected fiscal deterioration over the next three years,” an erosion of governance and a growing general debt burden. This led to a strong sell-off in the stocks and a surge in yields. Notably, Treasury yields spiked to the highs of 2023 last week. The 10-year yields topped 4.12%, marking the highest level since November 2022, while 30-year yields reached their highest level in nearly nine months to about 4.2%.
Further, the latest data revealed that the red-hot U.S. job market is cooling down. The economy added lower-than-expected 187,000 jobs in July, pointing to a slowing economy after a series of interest rate hikes by the Federal Reserve. Together, June and July represented the two weakest monthly gains in two and a half years. Meanwhile, China trade data for July showed a worse-than-expected drop in imports and exports, pointing to falling demand overseas and in China (read: 4 Sector ETFs & Stocks to Play Despite Soft July Jobs Data).
Inverse ETFs
These products either create a short position or a leveraged short position in the underlying index through the use of swaps, options, futures contracts and other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a short period of time, provided the trend remains a friend.
However, these funds run the risk of huge losses compared to traditional ones in fluctuating or seesawing markets. Further, their performance could vary significantly from the actual performance of the underlying index over a longer period compared to a shorter period (such as weeks or months).
Direxion Daily S&P Biotech Bear 3x Shares (LABD - Free Report) – Up 15.3%
Direxion Daily S&P Biotech Bear 3x Shares seeks to deliver three times the inverse daily performance of the S&P Biotechnology Select Industry Index, which includes domestic companies from the biotechnology industry.
Direxion Daily S&P Biotech Bear 3x Shares has amassed $82.7 million in its asset base and has an average daily volume of around 5 million shares. LABD charges investors 95 bps in annual fees.
Direxion Daily Technology Bear 3x Shares (TECS - Free Report) – Up 15.3%
Direxion Daily Technology Bear 3x Shares provides three times inverse exposure to the daily performance of the Technology Select Sector Index (read: 5 Beaten-Down Tech ETFs to Buy).
Direxion Daily Technology Bear 3x Shares has amassed about $131.3 million in its asset base while charging 95 bps in fees per year from investors. Volume is solid as it exchanges around 3 million shares a day on average.
Direxion Daily Semiconductor Bear 3x Shares (SOXS - Free Report) – Up 21.9%
Direxion Daily Semiconductor Bear 3x Shares targets the semiconductor corner of the technology sector with three times inverse leveraged exposure to the ICE Semiconductor Index.
Direxion Daily Semiconductor Bear 3x Shares has amassed about $1 billion in its asset base while charging 89 bps in fees per year. Volume is good as it exchanges 66.7 million shares per day on average.
Daily S&P 500 High Beta Bear 3X Shares (HIBS - Free Report) – Up 11.6%
Daily S&P 500 High Beta Bear 3X Shares offers three times inverse exposure to the performance of the S&P 500 High Beta Index. It has gathered $48.2 million in AUM and trades in an average daily volume of 2 million shares.
Daily S&P 500 High Beta Bear 3X Shares charges 95 bps in fees per year from investors.
MicroSectors Gold Miners -3X Inverse Leveraged ETN (GDXD - Free Report) – Up 11.3%
MicroSectors Gold Miners -3X Inverse Leveraged ETN seeks to offer three times inverse leveraged exposure to the S-Network MicroSectors Gold Miners Index.
MicroSectors Gold Miners -3X Inverse Leveraged ETN has accumulated $58.4 million in its asset base and trades in an average daily volume of 1 million shares. It charges 95 bps in annual fees.
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 (see: all the Inverse Equity ETFs here).
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 who believe that the “trend is the friend” in this specific corner of the investing world.