Top 10 Inverse Equity ETFs

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%.

 

ProShares Short Russell 2000 ETF ( RWM )

RWM follows the Russell 2000 Index (-100%) which consists of the smallest 10% of all U.S. equity universe as measured by Russell. The fund was launched January 2007. The expense ratio is .95%. AUM equal $350 million and average daily trading volume is 1.4M shares. As of late February 2012 the YTD return was -11.42%. The one year return was -12.45%.

 

ProShares Short Dow 30 ETF (DOG)

DOG follows the Dow Jones Industrial Average Index (-100%) which consists of 30 so-called "blue chip" companies. The fund was launched in June 2006. The expense ratio is .95%. AUM equal $277 million and average daily trading volume is 595K shares. As of late February 2012 the YTD return was -6.24%. The one year return was -12.27%.

ProShares Short QQQ ETF (PSQ)

PSQ follows the NASDAQ 100 Index (-100%). The fund was launched in June 2006. The expense ratio is .95%. AUM equal $170 million and average daily trading volume is 717M shares. As of late February 2012 the YTD return was -12.30%. The one year return was -14.17%.

ProShares Short MSCI Emerging Markets ETF (EUM)

EUM follows the MSCI Emerging Markets Index (-100%). The fund was launched in October 2007. The expense ratio is .95%.  AUM equal $193 million and average daily trading volume is 214K shares. As of late February 2012 the YTD return was -14.05%. The one year return was -9.03%.

ProShares Short MSCI EAFE ETF (EFZ)

EFZ follows the MSCI EAFE Index (-100%). The fund was launched in October 2007. The expense ratio is .95%. AUM equal $175 million and averaged daily trading volume is 200K shares. As of late February 2012 the YTD return was -9.63%- the one year return was -1.10%.

ProShares Short Financials ETF (SEF)

SEF follows the Dow Jones Financials Index (-100%). The fund was launch in June 2008. The expense ratio is .95%. AUM equal $95 million and average daily trading volume is 183K shares. As of late February 2012 the YTD return was -11.58%. The one year return was -3.00%.

 

ProShares Short Small-Cap 600 ETF (SBB)

SBB follows the S&P Small-Cap 600 Index (-100%) which is only slightly different than RWM in trend although with different constituents. The expense ratio is .95%. AUM equal $22 million and average daily trading volume is less than 30K shares. As of late February 2012 the YTD return was -10.33%. The one year return was -15.74%

ProShares Short Mid-Cap 400 ETF (MYY)

MYY follows the S&P MidCap 400 Index (-100%). The fund was launched in June 2006. The expense ratio is .95%. AUM equal $29 million and average daily trading volume is 60K shares. As of late February 2012 the YTD return was -11.22%. The one year return was -10.23%.

ProShares Short Regional Bank ETF (KRS)

KRS follows the KBW Regional Banking Index (-100%). The fund was launched in April 2010. The expense ratio is .95%. AUM equal $7 million and averaged daily trading volume is 5K shares. As of late February 2012 the YTD return was -9.68%. The one year return was -16.82%.

Once again two bear markets in a decade have hurt many investors. Strategically and tactically adding a hedge could save investors much pain during severe downturns. Further, apart from bonds, most diversification strategies, away from bonds, have proven unhelpful given recent bear markets. 

Although current demographics in the west favor a shift to fixed income products, most investors will want to maintain growth segments in their portfolios. Given this and previous bear markets having these products available are a positive development if used properly. At the ETF Digest we employ these products even within so-called Lazy portfolios.  

For further information about portfolio structures using this or other ETFs see ETF Digest .

The ETF Digest has no current positions in any of the ETFs in this list.

You may address any feedback to: feedback@etfdigest.com   

(Source for holding data is from various ETF websites and sponsors.)
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Dave Fry is founder and publisher of ETF Digest, Dave's Daily blog and the best-selling book author of Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management, published by Wiley Finance in 2008. A detailed bio is here: Dave Fry.

If you liked this article you might like

How ETFs Can Boost Your Portfolio

How ETFs Can Boost Your Portfolio

Prepare for Trump-Related Turmoil With This 'Portfolio Insurance'

Prepare for Trump-Related Turmoil With This 'Portfolio Insurance'

6 Ways to Profit When the Fed Goes 'Cold Turkey' on Ultra-Low Interest Rates

6 Ways to Profit When the Fed Goes 'Cold Turkey' on Ultra-Low Interest Rates

Two ETF Risks That Might Catch You by Surprise

Two ETF Risks That Might Catch You by Surprise

Akzo Nobel Shares Down on 'Uncertain' 2016 Outlook

Akzo Nobel Shares Down on 'Uncertain' 2016 Outlook