This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Inverse ETFs Gain Acceptance in Market Rout

The blood bath in the stock market has thrust inverse ETFs into the spotlight.

Only 61 of the 839 exchange-traded funds tracked by Morningstar have produced gains this year. The top 25 ETFs are all inverse funds, which move in the opposite direction of their underlying indices.

The growing popularity of these instruments was underscored when Direxion Shares launched a class of inverse ETFs that seek to achieve 300% of the daily performance of the four Russell indices they use as benchmarks. They are the Large-Cap Bear 3x Shares (BGZ), Small-Cap Bear 3x Shares (TZA), Energy Bear 3x Shares (ERY) and Financial Bear 3x Shares (FAZ). Direxion Shares also started four "bull" ETFs, which aim to return investors 300% of their underlying indices.

"The volume on the funds has ramped up very quickly, particularly in the large-cap and small-cap funds," said Andy O'Rourke, vice president and marketing director at Direxion Shares.

O'Rourke credits the leverage feature as being instrumental in the initial success of the ETFs. "In our current market environment, it is becoming more difficult to obtain leverage," he said. "Our funds offer a simplified way to obtain leverage."

These ETFs are not for the faint of heart, given their immense leverage. To give a sense of how volatile they can be, one only needs to look at FAZ. It opened at $103.49 on Nov. 19 and nearly doubled as it reached a high of $201.86 on Nov. 21. By Nov. 26, the shares had plummeted to $61.39.

Although inverse ETFs have only been trading for a little over two years now, they have gained wide acceptance. "They are wonderful things to have. You can profit as the market goes in either direction," said Jim Porter, portfolio manager of the Aston/New Century Absolute Return ETF Fund (ANENX).

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
ERY $16.86 0.00%
FAZ $12.41 0.00%
TZA $10.04 0.00%
AAPL $124.75 0.00%
FB $80.78 0.00%

Markets

DOW 17,826.30 -279.47 -1.54%
S&P 500 2,081.18 -23.81 -1.13%
NASDAQ 4,931.8150 -75.9760 -1.52%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs