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Inverse ETFs

The Inverse ETF

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The inverse ETF has become a popular way to hedge, particularly with the 2x and 3x leveraged inverse ETF’s offered by ProShares and Direxion.  These inverse ETFs offer investors a way to hedge their portfolios by going short without the need for using options or shorting by borrowing shares in a margin account.  Another advantage is being able to diversify on the short side within an entire sector such as financials and energy, allowing you to hone in on the weakest areas of the market while maintaining long positions in area of strength.  Never before has the retail investor been given so many options to protect themselves in deteriorating markets. 

Below is a list of the most popular leveraged inverse ETFs from PowerShares and Direxion.  Keep in mind this entire list is made of INVERSE ETF’s .. so they will move up when that particular market moves down.  Most are offered by ProShares unless noted.  The average number of shares traded per day is as of Dec 15th 2008.  On a final note, be careful with these.. they can move quickly!

 

Leveraged Inverse ETF Ticker Avg Shares Traded/Day*

Index
QQQQ 2x QID 45441K
Dow 30 2x DXD 16782K
SP 500 2x SDS 66035K
MidCap 400 2x MZZ 1190K
Small Cap 600 2x SDD 70K
Russell 2000 2x TWM 9038K
Large Cap Bear 3x (Direxion) BGZ 2728K
Small Cap Bear 3x (Direxion) TZA 1522K

Sectors
Basic Materials 2x SMN 4252K
Gold 2x GLL 9K
Oil & Gas 2x DUG 21287K
Crude Oil 2x SCO 55K
Energy 3x (Direxion) ERY 377K
Industrials 2x SIJ 79K
Consumer Goods 2x SZK 51K
Consumer Services 2x SCC 172K
Real Estate 2x SRS 8430K
Financials 2x SKF 25638
Financials 3x (Direxion) FAZ 1900K
Semiconductors 2x SSG 66K
Utilities 2x SDP 34K
Technology 2x REW 111K

Fixed Income
Lehman 7-10 YR Treasury 2x PST 62K
Lehman 20+ YR Treasury 2x TBT 997K

Currency
Euro/US 2x EUO 25K
Yen/US 2x YCS 3.5K

* As of December 15th, 2008

Rydex

List of Rydex ETFs

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I’m a big fan of ETF’s that offer unique ways to play the market and while ProShares and Direxion are the best in this regard, Rydex has a few inverse and leveraged ETFs worth a look.  The Rydex ETFs aren’t as liquid as some of the other ETFs so you certainly have to be careful, but thought I’d provide a couple of the more liquid Rydex ETF funds. 

– Rydex 2x S&P 500 (RSU) trades 292K shares a day and seeks to double the return of the S&P
– Rydex Inverse 2x S&P 500 (RSW) trades 86K shares a day and seeks to return double the inverse of the S&P, great for hedging
– Rydex S&P Equal Weight (RSP) trades 555K shares a day and seeks to return the performance of the S&P Equal Weight Index

– Rydex Russell Top 50 (XLG) trades 280K shares a day and seeks to return the performance of the Russell Top 50.  The Russell Top 50 includes large cap growth companies such as Exxon Mobile, Proctor & Gamble, GE, Microsoft, J&J, AT&T, Chevron, JP Morgan, IBM and Walmart.

Excluding the inverse Rydex ETFs which have obviously done very well in this bear market, their best performing ETF year to date is the Rydex S&P Equal Weight Consumer Staples ETF (RHS) with a YTD return of -27%.  It’s highly illiquid though, trading just 8K shares a day.  No surprise on the worst performer this year…. its the Rydex S&P Equal Weight Financial ETF (RYF) down 63% this year! Ouch.