5 Inverse ETFs Up More Than 40% In October

The month of October was scary for Wall Street, with rising interest rates, political turbulence in Italy, Saudi tensions, tech sell-offs, escalating US-China trade war and the prelude to mid-term election. All these sent Nasdaq Composite Index and S&P 500 Index into a correction territory (read: Further Selloffs Ahead? ETF Strategies to Follow).

However, the stocks rebounded slightly from the lowest level to close the month. Nasdaq tumbled 9.2%, its biggest monthly drop since November 2008 while the S&P 500 shed 6.9%, its biggest one-month slide since September 2011. The Dow Jones lost 5.1%, its biggest monthly fall since January 2016. However, a slew of strong earnings as well as rounds of upbeat economic data helped to lift investors’ sentiment somewhat.

The myriad woes have resulted in huge demand for inverse or leveraged inverse ETFs for investors seeking to make big gains in a short span. These products either create an inverse (opposite) position or leveraged (2x or 3x) inverse position in the underlying index through the use of swaps, options, future contracts and other financial instruments.

In fact, many products generated outsized gains (over 40%) in October despite involving a great deal of risk when compared to traditional products. Below, we have highlighted five such ETFs that crushed the market last month and should continue doing to do so at least in the near term if the same trends persist.

Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 3X Shares (LON:DRIP) – Up 73.1%

This fund seeks three times inverse exposure of the performance of the S&P Oil & Gas Exploration & Production Select Industry Index. DRIP has accumulated $67.8 million in its asset base and trades in a solid volume of around 5.2 million shares a day on average. The fund charges 95 bps in annual fees.

Direxion Daily Natural Gas Related Bear 3X Shares GASX – Up 55.8%

This product provides three times inverse exposure to the ISE-Revere Natural Gas Index. It has amassed $5.2 million in its asset base and trades in solid volume of 5.2 million shares a day on average. The ETF charges 95 bps in fees per year.

Direxion Daily S&P Biotech Bear 3x Shares LABD – Up 52.2%

This product seeks to deliver three times the inverse daily performance of the S&P Biotechnology Select Industry Index. The fund has amassed $66.4 million in its asset base and average daily volume of around 1.5 million shares. It charges investors 95 bps in annual fees and expenses (read: 7 Leveraged/Inverse ETFs Off to a Strong Start in October).

Direxion Daily Energy Bear 3x Shares ETF ERY – Up 48.8%

This product provides three times inverse exposure to the Energy Select Sector Index. It has AUM of $48.8 million and trades in good volume nearly 430,000 shares. The ETF charges annual fee of 95 bps.

Direxion Daily Semiconductor Bear 3x Shares SOXS – Up 43.1%

This ETF provides three times inverse exposure to the PHLX Semiconductor Sector Index. It charges 0.95% in annual fees and trades in average daily volume of 3.4 million shares. It manages $74.7 million in its asset base (read: Why October Spells Doom for Semis: ETFs in Focus).

Bottom Line

As a caveat, investors should note that such products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing – when combined with leverage – may force these products to deviate significantly from the expected long-term performance figures (see: all the Inverse Equity ETFs here).

Still, for ETF investors who are bearish on the equity market for the near term, either of the above products could make an interesting choice. Clearly, a near-term short could be intriguing for those with high-risk tolerance, and a belief that the “trend is the friend” in this corner of the investing world.

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