U.S. stocks crashed on Sep 13, following hotter-than-expected inflation data. This sparked fears of more aggressive rate hikes by the Fed that would continue to weigh on economic growth.
All three major indices posted the steepest one-day losses since Jun 11, 2020, with the Dow Jones Industrial Average plunging 3.9% and the S&P 500 dropping 4.3%. The tech-heavy Nasdaq Composite tumbled 5.2%. In fact, the six largest U.S. tech companies lost more than $500 billion in value in a single day.
The bearish sentiments led to a surge in inverse or inverse-leveraged ETFs as these fetch outsized returns on bearish sentiments in a short span. BMO REX MicroSectors FANG+ Index -3X Inverse Leveraged ETN FNGD, Direxion Daily Semiconductor Bear 3x Shares SOXS, ProShares UltraPro Short QQQ SQQQ, Daily S&P 500 High Beta Bear 3X Shares HIBS and Direxion Daily S&P Biotech Bear 3x Shares LABD outperformed on the Sep 13 session from different segments of the stock market and might continue their strong performance if sentiments remain the same.
Inverse and inverse-leveraged ETFs either create an inverse short position or a leveraged inverse short position in the underlying index through the use of swaps, options, futures contracts and other financial instruments. Due to their compounding effect, investors can enjoy higher returns in very short time, provided the trend prevails.
The steep decline erased all of the gains made recently, pushing the S&P 500 to below the 3,700 level. The S&P 500 is off 17% so far this year, while the Dow Jones is down 14%. Meanwhile, the Nasdaq Composite Index lost 26% (read: Hedge Volatility With These ETFs).
The new inflation data shows that the consumer price index climbed 8.3% year over year in August, down from an 8.5% rise in July but above the 8.1% increase expected by analysts. Inflation also rose 0.1% from July, dashing investors’ hopes that price pressures would weaken, allowing the Fed to slow its pace of interest rate increases in the coming months. Declining gasoline prices were offset by gains in the costs of rent and in food prices.
The cental bank is expected to lift off interest rates by 75 bps to tamp down inflation in the Sep 20-21 meeting. The unexpected high inflation report could prompt the Fed to continue its aggressive hikes longer than anticipated. Wall Street's big fear is that higher rates will eventually lead to an economic slowdown or even a recession.
BMO REX MicroSectors FANG+ Index -3X Inverse Leveraged ETN (FNGD) – Up 19.7%
BMO REX MicroSectors FANG+ Index -3X Inverse Leveraged ETN seeks to offer three times inverse leveraged exposure to the NYSE FANG+ Index, an equal-dollar weighted index, targeting the highly-traded growth stocks of next-generation technology and tech-enabled companies in the technology and consumer discretionary sectors.
BMO REX MicroSectors FANG+ Index -3X Inverse Leveraged ETN has accumulated $114 million in its asset base. It charges 95 bps in annual fees and trades in an average daily volume of 885,000 shares.
Direxion Daily Semiconductor Bear 3x Shares (SOXS) – Up 18.7%
Direxion Daily Semiconductor Bear 3x Shares targets the semiconductor corner of the technology sector with three times inverse leveraged exposure to the ICE Semiconductor Index.
Direxion Daily Semiconductor Bear 3x Shares has amassed about $528.7 million in its asset base while charging 95 bps in fees per year. Volume is good as it exchanges 66.7 million shares per day on average.
ProShares UltraPro Short QQQ (SQQQ) - Up 16.5%
ProShares UltraPro Short QQQ provides three times inverse exposure to the daily performance of the Nasdaq-100 Index, charging 95 bps in annual fees. The index measures the performance of the 100 largest domestic and international non-financial companies listed on the Nasdaq Stock Market based on market capitalization.
ProShares UltraPro Short QQQ has AUM of $5 billion and trades in an average daily volume of about 111.1 million shares.
Daily S&P 500 High Beta Bear 3X Shares (HIBS) – Up 15.5%
Daily S&P 500 High Beta Bear 3X Shares offers three times inverse exposure to the performance of the S&P 500 High Beta Index. It has gathered $62.4 million in AUM and trades in an average daily volume of 1.5 million shares (read: Low-Beta ETFs to Beat Market Turmoil).
Daily S&P 500 High Beta Bear 3X Shares charges 95 bps in fees per year from investors.
Direxion Daily S&P Biotech Bear 3x Shares (LABD) – Up 15.4%
Direxion Daily S&P Biotech Bear 3x Shares seeks to deliver three times the inverse daily performance of the S&P Biotechnology Select Industry Index, which includes the domestic companies from the biotechnology industry.
Direxion Daily S&P Biotech Bear 3x Shares has amassed $219.3 million in its asset base and has an average daily volume of around 12 million shares. LABD charges investors 94 bps in annual fees.
While the strategy is highly beneficial for short-term traders, it could lead to huge losses compared with traditional funds in fluctuating or seesawing markets. Further, their performances could vary significantly from the actual performance of their underlying index over a longer period compared to a shorter period (such as weeks or months) due to their compounding effect (see: all the Inverse Equity ETFs here).
Still, for ETF investors bearish on equities for the near term, either of the above products could make an interesting choice. Clearly, these could be intriguing for those with a high-risk tolerance, and a belief that the “trend is the friend” in this specific corner of the investing world.
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Direxion Daily S&P Biotech Bear 3X Shares (LABD): ETF Research Reports
ProShares UltraPro Short QQQ (SQQQ): ETF Research Reports
Direxion Daily Semiconductor Bear 3X Shares (SOXS): ETF Research Reports
MicroSectors FANG Index 3X Inverse Leveraged ETNs (FNGD): ETF Research Reports
Direxion Daily S&P 500 High Beta Bear 3X Shares (HIBS): ETF Research Reports
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