Top ETFs for Bear Markets

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Contrarian investors seeking to capitalize on the stocks’ recent declines, and also profit during a bear market, may decide to use an inverse exchange-traded fund (ETF). These ETFs are designed to make money when the stocks or underlying indexes they target see a price decline. Unlike shorting a stock, though, investors in inverse ETFs can profit without having to sell anything short. ETFs can be structured to focus on essentially any type of security. These ETFs, for example, did especially well in 2018, when the market faced a period of high volatility and huge declines due to rising fears about escalating geopolitical instability, including a trade war between the U.S. and China. In 2018, the market peaked on September 20th and reached a low point on December 24, falling by 19.8%, just short of formally reaching a bear market. Below, we’ll look at the performance of inverse ETFs that track the main U.S. indexes.

The best inverse ETF during the steep, three-month plunge in stocks in late 2018 was the ProShares Short QQQ (PSQ). We take a closer look at the top 3 ETFs in this category below. All returns stated below are during the 2018 stock market correction. All other figures are as of March 10, 2020.

  • Return During the 2018 Correction: 26.2%
  • Expense Ratio: 0.95%
  • Annual Dividend Yield: 1.76%
  • 3-Month Average Daily Volume: 4,428,313
  • Assets Under Management: $579.4 million
  • Inception Date: June 21, 2006
  • Issuing Company: ProShares

The ProShares Short QQQ fund is a large-cap ETF offering inverse exposure to an index of the largest 100 nonfinancial securities from the NASDAQ. Exposure resets on a monthly basis. PSQ’s top holdings are Apple, Inc. (AAPL) and Microsoft Corp. (MSFT), as well as e-commerce titan Inc. (AMZN).

  • Return During the 2018 Correction: 24.0%
  • Expense Ratio: 0.49%
  • Annual Dividend Yield: 1.84%
  • 3-Month Average Daily Volume: 58,155
  • Assets Under Management: $32.8
  • Inception Date: June 8, 2016
  • Issuing Company: Direxion

The Direxion Daily S&P 500 Bear 1X ETF is an inverse equities fund tracking the S&P 500 Index. This multi-cap fund is relatively equally weighted and is designed to provide 1x inverse exposure to one of the most popular indexes among investors. The top three holdings are currently Lumentum Holdings Inc. (LITE), the optical products maker; Trex Company Inc. (TREX), manufacturer of outdoor materials and items; and Palomar Holdings Inc. (PLMR), the insurance company.

  • Return During the 2018 Correction: 23.8%
  • Expense Ratio: 0.89%
  • Annual Dividend Yield: 1.67%
  • 3-Month Average Daily Volume: 8,957,040
  • Assets Under Management: $2.1 billion
  • Inception Date: June 21, 2006
  • Issuing Company: ProShares

Using the S&P 500 as its benchmark, SH aims to profit by as much as the benchmark index declines by investing in derivatives, that may include futures contracts, swaps, and stock options. The fund focuses on the behavior of large-cap stocks but also watches real estate investment trusts (REITS). The top holdings are Microsoft Corp. (MSFT), Apple Inc. (AAPL), and Inc. (AMZN).

Source: Investopedia

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