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 only—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 88 ETFs traded on the U.S. markets, Inverse ETFs have total assets under management of $12.25B. The average expense ratio is 1.04%. Inverse ETFs can be found in the following asset classes:
- Equity
- Fixed Income
- Commodities
- Alternatives
The largest Inverse ETF is the ProShares UltraPro Short QQQ SQQQ with $1.75B in assets. In the last trailing year, the best-performing Inverse ETF was TECS at 221.40%. The most recent ETF launched in the Inverse space was the MicroSectors Oil & Gas Exploration & Production -3X Inverse Leveraged ETN OILD on 11/08/21.