Inverse ETFs are powerful and complex trading instruments. They allow traders to benefit from price declines in major ETFs. For example, if the SPDR S&P 500 fund (SPY) goes down 1% on one day, you should expect that the price of ProShares Short S&P 500 ETF (SH) goes up 1% the same day. Inverse ETFs can use leverage as well to magnify their returns. Thus, these inverse-leveraged ETFs need to be handled with care.
Keep in mind that inverse ETFs deliver the desired returns over prespecified periods onlyâ€”usually one day. Thus, the stated multiple (e.g., - 2x) of the fund's underlying index only attempts to do so over one-day holding periods. Consequently, inverse ETFs can be inappropriate investment vehicles to hold if you have a significantly longer holding period in mind.
With 99 ETFs traded on the U.S. markets, Inverse ETFs have total assets under management of $21.44B. The average expense ratio is 1.03%. Inverse ETFs can be found in the following asset classes:
- Fixed Income
The largest Inverse ETF is the ProShares UltraPro Short QQQ SQQQ with $4.48B in assets. In the last trailing year, the best-performing Inverse ETF was TTT at 65.96%. The most recent ETF launched in the Inverse space was the Direxion Daily AAPL Bear 1X Shares AAPD on 08/09/22.