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 117 ETFs traded in the U.S. markets, Inverse ETFs gather total assets under management of $3.61B. The average expense ratio is 1.04%. Inverse ETFs can be found in the following asset classes:
- Equity
- Commodities
- Alternatives
- Fixed Income
The largest Inverse ETF is the Direxion Daily S&P 500 Bear 3X Shares SPXS with $508.98M in assets. In the last trailing year, the best performing Inverse ETF was the DGAZ at 232.96%. The most-recent ETF launched in the Inverse space was the Direxion Daily S&P 500 High Beta Bear 3X Shares HIBS in 11/07/19.