6 ETFs To Profit In Bear Markets

August 08, 2014

ETFs that gain from falling prices.


Chart Courtesy of StockCharts.com

It's no secret that the stock market has been on a tear over the past five years, but mounting concerns over geopolitical stability, rising interest rates and sky-high equity valuations have some investors wondering how long the party will continue.

Should markets turn south, consider these ETFs that aim to profit from falling prices:

The ProShares UltraShort S&P 500 ETF (SDS) provides 2x inverse exposure to the S&P 500. The fund's leverage resets daily, so it may be unsuitable for long-term exposure in choppy markets, but should do very well in steady down-trending markets. Alternatively, investors can get 1x inverse or 3x inverse exposure to the S&P 500.

Investors looking to profit from falling bond prices might instead prefer the ProShares UltraShort 20+ Year Treasury ETF (TBT), which provides 2x inverse exposure to U.S. Treasurys with more than 20 years remaining to maturity. This a high-octane way to short duration in U.S. Treasurys, but keep in mind that leverage resets daily.

An interesting new ETF that resets its inverse exposure monthly instead of daily is the Barclays Inverse U.S. Treasury Composite ETF (TAPR), which takes equally weighted short positions in U.S. Treasurys across the yield curve. TAPR's monthly reset feature deemphasizes the importance of timing and steadily down-trending bond markets and allows investors to take a longer-term stance on falling bond prices.

Investors that prefer an actively managed approach to shorting the stock market might consider the AdvisorShares Ranger Equity Bear ETF (HDGE), which uses fundamental analysis to identify and short companies with aggressive accounting policies and low earnings quality.

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