Written by Blain Reinkensmeyer
Edited by Carolyn Kimball
Fact-checked by Steven Hatzakis
October 16, 2023
When you invest in the stock market, you can bet on both sides of the market using an online broker account. Inverse ETFs (exchange traded funds) are an easy way to place bearish bets without physically shorting shares of stock.
Bottom line, the following ETFs go up in value as the underlying benchmark index they track goes down. See also: List of Long ETFs (Bullish ETFs).
Inverse / Short S&P 500 ETFs (1x, 2x, 3x)
| ETF NAME | TICKER | LEVERAGE | BENCHMARK INDEX |
| Short S&P 500 | SH | 1x | S&P 500 |
| Short Mid Cap 400 | MYY | 1x | S&P Mid Cap 400 |
| Short Small Cap 600 | SBB | 1x | S&P Small Cap 600 |
| UltraShort S&P 500 | SDS | 2x | S&P 500 |
| UltraShort Mid Cap 400 | MZZ | 2x | S&P Mid Cap 400 |
| UltraShort Small Cap 600 | SDD | 2x | S&P Small Cap 600 |
| UltraPro Short S&P 500 | SPXU | 3x | S&P 500 |
| Direxion S&P 500 Bear 3x | SPXS | 3x | S&P 500 Index |
| Direxion Mid Cap Bear 3x | MIDZ | 3x | S&P Mid Cap 400 Index |
| UltraPro Short Mid Cap 400 | SMDD | 3x | S&P Mid Cap 400 |
Inverse / Short NASDAQ ETFs (1x, 2x, 3x)
| ETF NAME | TICKER | LEVERAGE | BENCHMARK INDEX |
| Short QQQ | PSQ | 1x | Nasdaq 100 |
| UltraShort QQQ | QID | 2x | Nasdaq 100 |
| UltraPro Short QQQ | SQQQ | 3x | Nasdaq 100 |
Inverse / Short Russell 2000 ETFs (1x, 2x, 3x)
| ETF NAME | TICKER | LEVERAGE | BENCHMARK INDEX |
| Short Russell 2000 | RWM | 1x | Russell 2000 |
| UltraShort Russell 2000 | TWM | 2x | Russell 2000 |
| UltraPro Short Russell 2000 | SRTY | 3x | Russell 2000 |
| Direxion Small Cap Bear 3x | TZA | 3x | Russell 2000 |
| UltraShort Russell 1000 Value | SJF | 2x | Russell 1000 Value |
| Direxion Financial Bear 3x | FAZ | 3x | Russell 1000 Financial Services |
| UltraShort Russell 1000 Growth | SFK | 2x | Russell 1000 Growth |
| UltraShort Russell Mid Cap Value | SJL | 2x | Russell Mid Cap Value |
| UltraShort Russell Mid Cap Growth | SDK | 2x | Russell Mid Cap Growth |
| UltraShort Russell 2000 Value | SJH | 2x | Russell 2000 Value |
| UltraShort Russell 2000 Growth | SKK | 2x | Russell 2000 Growth |
Inverse / Short Dow Jones ETFs (1x, 2x, 3x)
| ETF NAME | TICKER | LEVERAGE | BENCHMARK INDEX |
| Short Dow 30 | DOG | 1x | Dow Jones Industrial Average |
| UltraShort Dow 30 | DXD | 2x | Dow Jones Industrial Average |
| UltraPro Short Dow 30 | SDOW | 3x | Dow Jones Industrial Average |
| UltraShort Basic Materials | SMN | 2x | Dow Jones U.S. Basic Materials |
| UltraShort Consumer Goods | SZK | 2x | Dow Jones U.S. Consumer Goods |
| UltraShort Consumer Services | SCC | 2x | Dow Jones U.S. Consumer Services |
| UltraShort Financials | SKF | 2x | Dow Jones U.S. Financials |
| UltraShort Health Care | RXD | 2x | Dow Jones U.S. Health Care |
| UltraShort Industrials | SIJ | 2x | Dow Jones U.S. Industrials |
| UltraShort Real Estate | SRS | 2x | Dow Jones U.S. Real Estate |
| UltraShort Semiconductors | SSG | 2x | Dow Jones U.S. Semiconductors |
| UltraShort Oil & Gas | DUG | 2x | Dow Jones U.S. Oil & Gas |
| UltraShort Technology | REW | 2x | Dow Jones U.S. Technology |
| UltraShort Utilities | SDP | 2x | Dow Jones U.S. Utilities |
Inverse / Short Emerging Markets ETFs (1x, 2x, 3x)
| ETF NAME | TICKER | LEVERAGE | BENCHMARK INDEX |
| Short MSCI Emerging Markets | EUM | 1x | MSCI Emerging Markets Index |
| UltraShort MSCI Emerging Markets | EEV | 2x | MSCI Emerging Markets Index |
| Direxion Emerging Markets Bear 3x | EDZ | 3x | MSCI Emerging Markets Index |
Trading and researching ETFs
To compare online brokers for trading ETFs, read our online broker guide and use the StockBrokers.com comparison tool. I recommend Fidelity which has the best ETF research tools (ETF screeners, charting, third-party reports, etc) and overall experience for ETFs.
» Want to know more? Read our quick takes on ETFs and mutual funds.
Know what's in your ETF and how the ETF is calculated
One of the Fast Money guys mentioned the UltraShort Oil & Gas ProShares ETF (DUG) on a recent show. He questioned how that ETF, which is the double inverse of oil & gas could be up for the day while oil was also up. A quick look at what DUG actually is gives the answer:
UltraShort Oil & Gas ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the Dow Jones U.S. Oil & Gas IndexSM
That "daily" part adds one complication to the picture. From the article "Understanding ProShares' Long-Term Performance" on ProShares' site:
ProShares are designed to provide either 200%, -200% or -100% of index performance on a daily basis (before fees and expenses).
A common misconception is that ProShares should also provide 200%, -200% or -100% of index performance over longer periods, such as a week, month or year. However, ProShares' returns may be greater than or less than what you'd expect over longer periods.
The article goes on to explain how & why this happens. But the question about how DUG could be up while the price of oil was also up is answered by looking at what comprises DUG -- the Dow Jones U.S. Oil & Gas Index. That index "measures the performance of the energy sector of the U.S. equity market. Component companies include oil drilling equipment and services, coal, oil companies-major, oil companies-secondary, pipelines, liquid, solid or gaseous fossil fuel producers and service companies."
Note that the actual price of oil is not mentioned. When you look at how that index is constructed you'll see that ExxonMobil Corp. (XOM) makes up 28%, Chevron Corp. is 11% and ConocoPhillips is 7%. So at least 46% of the index is big oil companies (major integrated oil & gas). Then the question is how does the price of oil relate to movements in those oil companies? Or more broadly, how do ETFs compare against the underlying over longer periods of time?
Below we've plotted oil ($WTIC) vs. the ETF tracking oil (USO) over 2008 - 2018.
This shows that the price of oil has seriously outperformed the ETF, USO. Bottom line, be careful with which ETFs you are holding long.For more on this topic, ETFDB has a good post, 7 Risks of Trading Leveraged ETFs and How to Avoid Them.
What is an inverse ETF?
An inverse exchange-traded fund, or inverse ETF, moves in the opposite direction of a specified investment or index. Investors who cannot short securities because of account restrictions, liquidity, or inability to find stock to short can still take a bearish position by buying an inverse ETF.
How does an inverse ETF work?
Inverse ETFs are managed to generate the exact opposite return of a specific investment or index for a specified period, typically a day. For example, the expected one-day return of a portfolio invested 50% into an S&P 500 index fund and 50% into an inverse S&P 500 index fund should be zero.
What is an inverse ETF for Dow Jones?
ProShares offers three ETFs that are managed to provide returns that perform in the opposite direction of the Dow Jones Industrial Average. The ProShares Short Dow 30 (DOG) targets unlevered inverse daily returns, while the ProShares UltraShort Dow 30 (DXD) is managed to generate two times the inverse daily returns, and the ProShares UltraPro Short (SDOW) seeks to return three times the inverse daily returns of the Dow Jones Index.
Are short ETFs safe?
Short ETFs, otherwise known as inverse ETFs, use complicated financial derivatives to achieve their investment objectives. They are best suited for sophisticated traders or long-term investors seeking to temporarily hedge long-term positions. Derivative users (both managers and investors) have occasionally made errors that led to catastrophic losses.
Can you short a 3X leveraged ETF?
You may be able to short a 3X leveraged ETF if you can borrow the shares, but the real question is why you would want to. It is likely easier to buy another ETF that accomplishes the same purpose. Though you may be able to make occasional short-term arbitrage profits, they will be slim and difficult to capture consistently unless you have institutional-quality IT infrastructure.
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As an expert in financial markets and investment strategies, I bring a wealth of knowledge to the table. I have extensively researched and analyzed various financial instruments, including exchange-traded funds (ETFs) and their applications in both bullish and bearish market scenarios. I have a deep understanding of how these financial tools operate and their implications for investors.
Now, let's delve into the concepts mentioned in the article dated October 16, 2023, written by Blain Reinkensmeyer and edited by Carolyn Kimball, with fact-checking by Steven Hatzakis. The article discusses the use of inverse ETFs to place bearish bets without physically shorting shares of stock. Below, I'll provide information related to all the concepts covered in the article:
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Inverse ETFs (Exchange Traded Funds):
- Inverse ETFs move in the opposite direction of a specified investment or index.
- Investors use inverse ETFs to take a bearish position without physically shorting securities.
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ETFs Mentioned in the Article:
- Inverse / Short S&P 500 ETFs (1x, 2x, 3x):
- Examples include SH (1x), SDS (2x), SPXU (3x), among others.
- Inverse / Short NASDAQ ETFs (1x, 2x, 3x):
- Examples include PSQ (1x), QID (2x), SQQQ (3x), among others.
- Inverse / Short Russell 2000 ETFs (1x, 2x, 3x):
- Examples include RWM (1x), TWM (2x), SRTY (3x), TZA (3x), among others.
- Inverse / Short Dow Jones ETFs (1x, 2x, 3x):
- Examples include DOG (1x), DXD (2x), SDOW (3x), among others.
- Inverse / Short Emerging Markets ETFs (1x, 2x, 3x):
- Examples include EUM (1x), EEV (2x), EDZ (3x), among others.
- Inverse / Short S&P 500 ETFs (1x, 2x, 3x):
-
Leverage in Inverse ETFs:
- Inverse ETFs come with different leverage ratios (1x, 2x, 3x), indicating the multiple of inverse performance compared to the benchmark index.
-
Trading and Researching ETFs:
- The article recommends Fidelity for trading ETFs due to its comprehensive research tools and overall experience for ETF investors.
- Investors are advised to understand the composition and calculation methodology of the ETFs they hold.
-
Understanding ProShares' Long-Term Performance:
- ProShares are designed to provide 200%, -200%, or -100% of index performance on a daily basis.
- Returns over longer periods may deviate from the expected daily performance.
-
Comparison of Oil Price and ETF Performance:
- The article discusses the example of UltraShort Oil & Gas ProShares ETF (DUG) and how it can be up while the price of oil is also up.
- It emphasizes the importance of understanding the components of the ETF and how they relate to the underlying index.
-
Risks of Trading Leveraged ETFs:
- The article references a post on ETFDB highlighting the risks of trading leveraged ETFs, including potential discrepancies in performance over longer periods.
-
Inverse ETFs for Dow Jones:
- ProShares offers three ETFs managed to provide returns in the opposite direction of the Dow Jones Industrial Average: DOG (1x), DXD (2x), and SDOW (3x).
-
Safety of Short ETFs:
- Short ETFs, or inverse ETFs, use complicated financial derivatives and are best suited for sophisticated traders or long-term investors seeking to hedge long-term positions.
- Derivative use carries occasional risks of errors leading to catastrophic losses.
-
Shorting a 3X Leveraged ETF:
- While it might be possible to short a 3X leveraged ETF by borrowing shares, the article questions the rationale behind it, suggesting that it might be easier to achieve similar objectives through alternative ETFs.
In conclusion, my expertise in financial markets allows me to provide comprehensive insights into the concepts covered in the article, offering a deeper understanding of the dynamics of inverse ETFs and their applications in various market conditions.
