With increasing trade war jitters, Wall Street is likely to record losses for May 2019 for the first time in 7 years. The three major stock market indices, the Dow Jones Industrial Average, S&P 500, and Nasdaq have all lost as much as 4% this month alone, and could continue this trend. If the losses persist, this would signify the first May since 2012 where any other benchmarks declined.
Given the potentially bearish climate, investors could look to short the S&P 500 using inverse ETFs like SH, SPDN, SDS, SPXU, SPXS. It is important to keep in mind that this strategy is best for short-term traders, as market fluctuations could lead to sizeable losses if trades aren’t regulated accordingly.
Here is a look at five inverse ETFs in more detail:
1. ProShares Short S&P500 (SH )
This short ProShares ETF (SH) seeks a return that is -1x the return of its underlying benchmark (target) for a single day, as measured from one NAV calculation to the next. Due to the compounding of daily returns, ProShares’ returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period. These effects may be more pronounced in funds with larger or inverse multiples and in funds with volatile benchmarks. Investors should monitor their holdings as frequently as daily.
2. Direxion Daily S&P 500 Bear 1X Shares (SPDN )
The Direxion Daily S&P 500 Bear 1X Shares seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the performance of the S&P 500® Index. There is no guarantee the fund will meet its stated investment objectives. This ETF seeks a return that is -100% of the return of its benchmark index for a single day. The fund should not be expected to provide 100% of the inverse of the benchmark’s cumulative return for periods greater than a day.
3. ProShares UltraShort S&P500 (SDS )
This short ProShares ETF seeks a return that is -2x the return of its underlying benchmark (target) for a single day, as measured from one NAV calculation to the next. Due to the compounding of daily returns, ProShares’ returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period. These effects may be more pronounced in funds with larger or inverse multiples and in funds with volatile benchmarks. Investors should monitor their holdings as frequently as daily.
4. ProShares UltraPro Short S&P500 (SPXU)
This short ProShares ETF seeks a return that is -3x the return of its underlying benchmark (target) for a single day, as measured from one NAV calculation to the next. Due to the compounding of daily returns, ProShares’ returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period. These effects may be more pronounced in funds with larger or inverse multiples and in funds with volatile benchmarks. Investors should monitor their holdings as frequently as daily.
5. Direxion Daily S&P 500® Bear 3X Shares (SPXS )
The Direxion Daily S&P 500® Bear 3X Shares seeks daily investment results, before fees and expenses, of 300%, or 300% of the inverse (or opposite), of the performance of the S&P 500® Index. There is no guarantee the funds will meet their stated investment objectives. This leveraged ETF seeks a return that is 300% or -300% of the return of their benchmark index for a single day. The funds should not be expected to provide three times or negative three times the return of the benchmark’s cumulative return for periods greater than a day.
For more inverse ETF strategies, visit our Leveraged & Inverse ETF Channel.
