Not as Easy to Short ETFs as You May Think

In the end, it may be easier to buy ETFs that do the shorting for you.

ProShares has a stable of 29 ETFs that move in the opposite direction of an index or track two times the inverse performance of a benchmark. The funds charge an expense ratio of 0.95%. The options are still fairly limited compared with the number of ETFs you might want to sell short. But the beauty of buying a short ETF is that you don't have to set up a margin account.

"This is shorting made easy," says Michael Sapir, CEO of ProShares. (To watch a video interview with Sapir about inverse ETFs, click here.)

By shorting index futures contracts and holding swap agreements, or contracts between two parties to exchange a revenue stream, ProShares' funds can produce a return that closely equals the opposite of a variety of indices. For instance, if the S&P 500 falls 5%, the Short S&P 500 (SH) should rise 5%, while the UltraShort S&P 500 (SDS) gets double the negative return.

Likewise, the Short QQQ (PSQ) tracks the inverse performance of the Nasdaq 100 Index, and the Short Dow30 (DOG) gives the opposite return of the Dow Jones Industrial Average.

ProShares also offers short plays on value and growth styles, such as the UltraShort Russell 1000 Value (SJF), as well as on market sectors, such as the UltraShort Financials (SKF) and UltraShort Real Estate (SRS).

Currently, ProShares is the only company that offers ETFs that short indices. But it may soon have competition. Rydex has filed plans with the Securities and Exchange Commission for 64 inverse ETFs. ProShares itself has an additional 58 in registration.

To find out how to use inverse ETFs in your portfolio, read here.

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