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The tech-heavy Nasdaq Composite Index entered correction territory (down 10% from its early July record high) after a softer-than-expected jobs data report spurred worries over a slowing U.S. economy. Disappointing earnings from Amazon (AMZN) and Intel (INTC) have also spooked investors.
Intel plunged 26%, marking its worst day since 2000, after missing earnings estimates, while Amazon also had its worst day since 2022, declining nearly 9% (read: Intel Tanks on Big Q2 Earnings Miss: ETFs in Focus).
This resulted in a spike in inverse or inverse leveraged ETFs as these fetch outsized returns on quick market turns in a short span. The ETFs that spiked are Direxion Daily Semiconductor Bear 3x Shares (SOXS) , MicroSectors FANG & Innovation -3x Inverse Leveraged ETN (BERZ) , MicroSectors Travel -3x Inverse Leveraged ETN (FLYD) , Daily S&P 500 High Beta Bear 3X Shares (HIBS) and Daily Dow Jones Internet Bear 3X Shares (WEBS) .
These products either create a short position or a leveraged short position in the underlying index through the use of swaps, options, future contracts and other financial instruments.
The labor market cooled down in July as the economy added 114,000 jobs, 35% fewer than expected. Unemployment rose to 4.3%, the highest since October 2021 and represents the fourth consecutive monthly increase. According to CME's FedWatch Tool, expectations for a rate cut of 50 bps at the Fed's September meeting jumped to 69.5% from 22% in the prior session.
Nasdaq's decline came as investors dumped technology stocks, which have led the charge higher for most of the year, driven by AI excitement. Other factors, such as increased unemployment and high interest rates for too long, also raised recession concerns and triggered sell-off across the board.
ETFs in Focus
Direxion Daily Semiconductor Bear 3x Shares (SOXS) – Up 16.8%
Direxion Daily Semiconductor Bear 3x Shares targets the semiconductor corner of the technology sector with three times inverse leveraged exposure to the NYSE Semiconductor Index. It has amassed about $710.6 million in its asset base while charging 88 bps in fees per year. Volume is good as it exchanges 44 million shares per day on average (read: Are Semiconductor ETFs Better Bets on AI Boom Than Big Techs?).
MicroSectors FANG & Innovation -3x Inverse Leveraged ETN is linked to the three times the leveraged inverse performance of the Solactive FANG Innovation Index. The index tracks the stock prices of 15 large-capitalization, highly liquid U.S. technology stocks. With AUM of $14.5 million, MicroSectors FANG & Innovation -3x Inverse Leveraged ETN has an expense ratio of 0.95% and trades in an average daily volume of 124,000 shares.
MicroSectors Travel -3x Inverse Leveraged ETN (FLYD) – Up 13.9%
MicroSectors Travel -3x Inverse Leveraged ETN offers three times inverse exposure to the performance of the MerQube MicroSectors U.S. Travel Index, which measures the performance of large, liquid U.S. listed and domiciled companies operating in the RBICS Sub Industries related to travel and tourism. It has gathered $2.5 million in its asset base. MicroSectors Travel -3x Inverse Leveraged ETN charges 95 bps in fees per year and trades in an average daily volume of 1,000 shares.
Daily S&P 500 High Beta Bear 3X Shares (HIBS) – Up 12.3%
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 $26.1 million in its asset base and trades in an average daily volume of 175,000 shares. Daily S&P 500 High Beta Bear 3X Shares charges 95 bps in fees per year from investors.
Daily Dow Jones Internet Bear 3X Shares (WEBS) – Up 12%
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 $15.1 million in its asset base and charges 95 bps in annual fees. The ETF sees an average daily volume of about 398,000 shares.
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. Due to their compounding effect, investors can enjoy higher returns in a short period of time, provided the trend remains a friend (see: all the Inverse Equity ETFs here).
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).
Image: Bigstock
Inverse ETFs Spike as Nasdaq Enters Correction
The tech-heavy Nasdaq Composite Index entered correction territory (down 10% from its early July record high) after a softer-than-expected jobs data report spurred worries over a slowing U.S. economy. Disappointing earnings from Amazon (AMZN) and Intel (INTC) have also spooked investors.
Intel plunged 26%, marking its worst day since 2000, after missing earnings estimates, while Amazon also had its worst day since 2022, declining nearly 9% (read: Intel Tanks on Big Q2 Earnings Miss: ETFs in Focus).
This resulted in a spike in inverse or inverse leveraged ETFs as these fetch outsized returns on quick market turns in a short span. The ETFs that spiked are Direxion Daily Semiconductor Bear 3x Shares (SOXS) , MicroSectors FANG & Innovation -3x Inverse Leveraged ETN (BERZ) , MicroSectors Travel -3x Inverse Leveraged ETN (FLYD) , Daily S&P 500 High Beta Bear 3X Shares (HIBS) and Daily Dow Jones Internet Bear 3X Shares (WEBS) .
These products either create a short position or a leveraged short position in the underlying index through the use of swaps, options, future contracts and other financial instruments.
The labor market cooled down in July as the economy added 114,000 jobs, 35% fewer than expected. Unemployment rose to 4.3%, the highest since October 2021 and represents the fourth consecutive monthly increase. According to CME's FedWatch Tool, expectations for a rate cut of 50 bps at the Fed's September meeting jumped to 69.5% from 22% in the prior session.
Nasdaq's decline came as investors dumped technology stocks, which have led the charge higher for most of the year, driven by AI excitement. Other factors, such as increased unemployment and high interest rates for too long, also raised recession concerns and triggered sell-off across the board.
ETFs in Focus
Direxion Daily Semiconductor Bear 3x Shares (SOXS) – Up 16.8%
Direxion Daily Semiconductor Bear 3x Shares targets the semiconductor corner of the technology sector with three times inverse leveraged exposure to the NYSE Semiconductor Index. It has amassed about $710.6 million in its asset base while charging 88 bps in fees per year. Volume is good as it exchanges 44 million shares per day on average (read: Are Semiconductor ETFs Better Bets on AI Boom Than Big Techs?).
MicroSectors FANG & Innovation -3x Inverse Leveraged ETN (BERZ) – Up 13.9%
MicroSectors FANG & Innovation -3x Inverse Leveraged ETN is linked to the three times the leveraged inverse performance of the Solactive FANG Innovation Index. The index tracks the stock prices of 15 large-capitalization, highly liquid U.S. technology stocks. With AUM of $14.5 million, MicroSectors FANG & Innovation -3x Inverse Leveraged ETN has an expense ratio of 0.95% and trades in an average daily volume of 124,000 shares.
MicroSectors Travel -3x Inverse Leveraged ETN (FLYD) – Up 13.9%
MicroSectors Travel -3x Inverse Leveraged ETN offers three times inverse exposure to the performance of the MerQube MicroSectors U.S. Travel Index, which measures the performance of large, liquid U.S. listed and domiciled companies operating in the RBICS Sub Industries related to travel and tourism. It has gathered $2.5 million in its asset base. MicroSectors Travel -3x Inverse Leveraged ETN charges 95 bps in fees per year and trades in an average daily volume of 1,000 shares.
Daily S&P 500 High Beta Bear 3X Shares (HIBS) – Up 12.3%
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 $26.1 million in its asset base and trades in an average daily volume of 175,000 shares. Daily S&P 500 High Beta Bear 3X Shares charges 95 bps in fees per year from investors.
Daily Dow Jones Internet Bear 3X Shares (WEBS) – Up 12%
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 $15.1 million in its asset base and charges 95 bps in annual fees. The ETF sees an average daily volume of about 398,000 shares.
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. Due to their compounding effect, investors can enjoy higher returns in a short period of time, provided the trend remains a friend (see: all the Inverse Equity ETFs here).
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).