NEW YORK ( ETF Digest) -- There have been two bear markets in the past decade which is a first since the Great Depression. Investors need to protect themselves without necessarily speculating using too much leverage. Inverse ETF issues allow even retail investors and financial advisors the tools with which to hedge long equity positions. These issues allow for more sophisticated strategies including modest long/short strategies. In our opinion this is more easily done with these products versus more complex products like options and futures. The latter can be off-putting and time consuming to implement and manage for many investors. Also for retirement accounts shorting and/or using other tools are unavailable.
Understanding how these issues operate and perform is another issue facing investors. Firstly, stock market volatility may and has affected precise tracking. Further, the daily structure also may give rise to compounding issues which could also negatively affect precise index tracking. Therefore, sometimes without careful management of your positions, these products may not deliver what you would normally expect intuitively.
In our opinion, this makes timing and technical analysis all the more important as to when to use these products or not.
We're not ranking these ETFs favoring one over another since what's popular or working is both situational and temporary. Although we may use any of these in ETF Digest portfolios it's not our intention to recommend one over another.Whereas many previous technical analysis methodologies involved evaluating monthly charts inverse issues require greater attention and this involves shorter-term views. Making these tactical decisions then shortens our view to weekly charts augmented by daily chart views and analysis. We think it pays to be active and utilize a more proactive risk management approach. ProShares (exclusively featured below due to best liquidity) and DirexionShares feature products for those investors wishing to speculate or hedge. The weekly charts that follow feature 22 period moving averages, Relative Strength indicator and conventional MACD moving averages. Not shown but referred to are Tom DeMark indicators which we use in conjunction with other proprietary indicators to determine positions. To determine positions it's more effective to track the relevant indexes and/or conventional ETFs to which these leveraged products are linked (or best trend with) versus these issues themselves. Often erratic behavior of these issues alone may alter what might ordinarily be the right position. Therefore, it's important in our opinion to remember to remain disciplined and systematic in using these issues.
ProShares Short S&P 500 ETF (SH) SH follows the S&P 500 Index (-100%). The fund was launched in June 2006. The expense ratio is .90%. AUM (Assets under Management) equal $2 billion and average daily trading volume is $4M shares. As of the beginning of late February 2012 the YTD return was -.-8.09%. The one year return was -9.39%.