Even with positive vibes reverberating through the S&P 500 and Nasdaq Composite, it would be foolhardy to ignore market volatility. The first quarter has been a good one for U.S. equities, but with the wall of worry growing–inverted yield curves, trade wars, global growth, and a more dovish Federal Reserve–it has investors wondering about the rest of 2019.
More volatility on the horizon perhaps?
When volatility appears in a big way, this can be beneficial to the short-term trader. ETF issuers are now offering a plethora of options, such as leveraged and inverse products to give investors access to an investment space that was typically relegated to only high-net worth individuals or institutions.
With the transparency and liquidity of an ETF wrapper that incorporates multiple hedge fund strategies, it opens up the arena to all types of investors irrespective of net worth–the case for using alternative and thematic tools in the current market landscape. This can benefit investors, particularly during a market drawdown where hedging and inverse opportunities can be had.
Per a report in Barron’s, “Citigroup sees storms on the horizon for risky markets. So investors should “pack up early before the rain spoils the picnic,” say the bank’s U.S. investment-grade credit strategists, and move their money into safer investments.”
Of course, that type of flight could also stir up volatility in the markets, which makes it a boon for traders using leveraged ETFs. In particular, sell-offs would make inverse ETFs a prime play to capture gains during a drawdown–the sharper, the better for these plays.
As evidenced by fund flows, these inverse gains can be had in areas where traders sense weakness, such as as semiconductors or even in the S&P 500.
The table via ETFdb.com below includes fund flow data for all U.S. listed Leveraged ETFs. Total fund flow is the capital inflow into an ETF minus the capital outflow from the ETF for a particular time period.
|Symbol||ETF Name||YTD FF|
|(TVIX )||VelocityShares Daily 2x VIX Short Term ETN||$1,080.39|
|(SQQQ )||ProShares UltraPro Short QQQ||$942.98|
|(UVXY )||ProShares Ultra VIX Short-Term Futures||$796.88|
|(UGAZ )||VelocityShares 3x Long Natural Gas||$432.77|
|(SDS )||ProShares UltraShort S&P 500||$350.57|
|(SPXU )||ProShares UltraPro Short S&P 500||$282.00|
|(FRLG)||GS Finance Large Cap Growth Index-Linked ETN||$246.53|
|(SOXS )||Direxion Daily Semiconductor Bear 3x Shares||$237.28|
|(SPXS )||Direxion Daily S&P 500 Bear 3X Shares||$229.89|
|(DWT)||VelocityShares 3x Inverse Crude Oil ETN||$195.95|
For more leveraged ETF trends and strategies, visit our Leveraged & Inverse ETF Channel.