Leveraged / Inverse China ETFs

Published on August 18, 2011 | Updated July 18, 2012

For investors looking to achieve leveraged and inverse exposure to China’s stock market, there are a handful of options available. These products will be capable of considerable volatility; Chinese equities are already subject to big price swings in relatively short periods of time, and the addition of explicit leverage creates products that aren’t for the faint of heart.

While China ETFs bring significant risks, they also carry the potential for tremendous returns; a well-timed trade in one of the leveraged funds highlighted below can bring investors meaningful returns in a matter of hours in the right environment. For risk-hungry investors, there are a number of potentially intriguing leveraged ETFs that may be useful trading vehicles.

Under The Hood

Each of the leveraged China ETFs features a daily reset mechanism, meaning that they seek to deliver returns over the course of a single trading session only. When held for longer or shorter than a single session, the effective leverage achieved can deviate from the target multiple indicated.

The leveraged and inverse China ETFs use derivatives to accomplish their stated objectives. While this structure doesn’t bring any meaningful additional risk, it’s worth noting in order to better understand how these securities function.

ProShares Short FTSE China 25 (YXI)

This ETF offers daily inverse exposure to the FTSE China 25 Index, the same benchmark to which the ultra-popular FXI is linked.

YXI might be a useful tool for investors looking to hedge existing exposure to Chinese stocks, though it should be noted that this ETF is designed to deliver -100% exposure over a single period only. As such, the performance experienced by shorting FXI or going long YXI may vary considerably—especially in volatile markets. This ETF can certainly still be used as part of a longer-term strategy, but investors should be sure to understand the nuances of the daily reset of exposure.

ProShares UltraShort FTSE China 25 (FXP)

For those seeking to leverage up a short beta against China, FXP can be a useful tool. This ETF should generate returns equal to -200% of FXI on a daily basis, and will reset exposure daily.

Direxion Daily China Bear 3x Shares (YANG)

YANG offers even more substantial leverage for risk tolerant investors looking to bet on a short-term decline in Chinese stock markets. This ETF will often exhibit significant volatility, and will also be impacted by the path of the underlying index if held for multiple trading sessions.

YANG is a potentially powerful tool, but will require regular monitoring and perhaps rebalancing if being used as part of a longer-term strategy.

The index to which YANG is linked is not associated with any non-leveraged U.S.-listed ETFs.

ProShares Ultra FTSE China 25 (XPP)

This ETF is one option for those looking to double down on China exposure; XPP can be expected to turn in daily results that correspond to 200% of FXI.

Direxion Daily China Bull 3x Shares (YINN)

This ETF is the 3x counterpart to YANG, and as such is appropriate only for risk tolerant investors who have the willingness and ability to monitor positions closely. Anyone using YINN should be prepared to experience some significant volatility; it is not uncommon for this ETF to swing by 5% or more in a single session.

Ticker ETF Leverage Reset Index ER
YXI Short FTSE China 25 -1x Daily FTSE China 25 Index 0.95%
XPP Ultra FTSE China 25 2x Daily FTSE China 25 Index 0.95%
FXP UltraShort FTSE China 25 -2x Daily FTSE China 25 Index 0.95%
YINN Daily China Bull 3x Shares 3x Daily BNY Mellon China Select ADR 0.95%
YANG Daily China Bear 3x Shares -3x Daily BNY Mellon China Select ADR 0.95%

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