Stocks have worst day in 2 years: Inverted ETFs shine

Oall Street had its worst day since the early months of the pandemic due to disappointing earnings streaks from some major retailers, underscoring that inflation is hurting corporate earnings. In addition, the tightening of monetary policy is weighing on economic growth,

Bearish sentiment has increased the appeal of inverse or inverse leveraged ETFs, as these generate outsized returns on bearish sentiment over a short period of time. ProShares Ultra VIX Short-Term Futures ETF UVXY, BMO REX MicroSectors FANG+ Index -3X Reverse Leveraged ETN FGD, Direxion Daily Semiconductor Bear 3x Stocks SOXS, Direxion Daily S&P Biotech Bear 3x Stock LABD and ProShares UltraPro Short QQQ SQQQ outperformed in the May 18 session and could continue its strong performance if sentiment remains the same (read: S&P 500 Near Bear Market: Inverse ETFs in Focus).

Inverse and inverse leveraged ETFs create either an inverse short position or an inverse leveraged short position in the underlying index through the use of swaps, options, futures and other financial instruments. Due to their cumulative effect, investors can benefit from higher returns in a very short period of time, provided the trend prevails.

The S&P 500 fell 4% on May 18, while the Dow Jones Industrial lost 3.6%. It was the worst one-day loss for both indices since June 2020. Target Corp. TGT fell more than 20% in its worst rout since 1987, after it cut its profit forecast. Retailers from Walmart Inc. WMT to Macy’s Inc. (M) were caught in the rout. As such, the consumer staples and consumer discretionary sectors lagged (read: Walmart slumps on missed Q1 earnings: ETF in brief).

Meanwhile, the Nasdaq 100 fell the most among major benchmarks, plunging more than 5% as growth-linked tech stocks fell.

ProShares Ultra VIX Short Term ETF (UVXY) – Up 21.6%

The ProShares Ultra VIX Short-Term Futures ETF offers exposure to one and a half times (1.5X) the daily performance of the S&P 500 VIX Short-Term Futures Index. It seeks to profit from increases in the expected volatility of the S&P 500, as measured by VIX futures prices.

The ProShares Ultra VIX Short-Term Futures ETF has accumulated $771.4 million and charges 95 basis points in annual fees. It trades an average daily volume of 74.1 million shares.

BMO REX MicroSectors FANG+ -3X Reverse Leveraged ETN (FNGD) Index – Up 15%

The BMO REX MicroSectors FANG+ -3X Inverse Leveraged ETN Index seeks to provide three times inverse leveraged exposure to the NYSE FANG+ Index, an equal dollar weighted index, targeting highly traded growth stocks of next-generation technologies and technology-focused companies in the technology and consumer discretionary sectors.

The BMO REX MicroSectors FANG+ -3X Inverse Leveraged ETN Index has accumulated $102.4 million in its asset base. It charges 95 basis points in annual fees and trades an average daily volume of 774,000 shares.

Direxion Daily Semiconductor Bear 3x Shares (SOXS) – Up 14.9%

Direxion Daily Semiconductor Bear 3x Shares targets the semiconductor sector of the tech sector with three times inverse leveraged exposure to the ICE Semiconductor Index (read: 5 inverse ETFs that rose more than 60% in April).

Direxion Daily Semiconductor Bear 3x Shares has amassed approximately $239.7 million in its asset base while charging 95 basis points in fees per year. The volume is good since it trades on average 66.7 million shares per day.

Direxion Daily S&P Biotech Bear 3x Shares (LABD) – Up 14.8%

Direxion Daily S&P Biotech Bear 3x Shares seeks to deliver three times the inverse daily performance of the S&P Biotechnology Select Industry Index, which includes national companies in the biotech industry.

Direxion Daily S&P Biotech Bear 3x Shares has amassed $107.5 million in its asset base and has an average daily volume of approximately 4 million shares. LABD charges investors 94 basis points in annual fees.

ProShares UltraPro Short QQQ (SQQQ) – Up 14.5%

ProShares UltraPro Short QQQ provides three times inverse exposure to the daily performance of the Nasdaq-100 Index, charging 95 basis points in annual fees. The index measures the performance of the 100 largest domestic and international non-financial companies listed on the Nasdaq stock market based on market capitalization.

ProShares UltraPro Short QQQ has an AUM of $3 billion and trades in an average daily volume of approximately 104 million shares.

Conclusion

Although the strategy is very beneficial for short-term traders, it could lead to huge losses compared to traditional funds in fluctuating or swinging markets. In addition, their performance may vary significantly from the actual performance of their underlying index over a longer period versus a shorter period (such as weeks or months) due to their compounding effect (see: all Inverse Equity ETF here).

Still, for ETF investors with short-term equity bearishness, either of the above products could be an attractive choice. Obviously, these could be intriguing for those with a high risk tolerance and a belief that “trend is friend” in that specific corner of the investing world.

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Target Corporation (TGT): Free Stock Analysis Report

Walmart Inc. (WMT): Free Inventory Analysis Report

ProShares Ultra VIX ShortTerm Futures ETF (UVXY): ETF Research Reports

Direxion Daily S&P Biotech Bear 3X Shares (LABD): ETF Research Reports

ProShares UltraPro Short QQQ (SQQQ): ETF Research Reports

Direxion Daily Semiconductor Bear 3X Shares (SOXS): ETF Research Reports

MicroSectors FANG Index 3X Reverse Leveraged ETN (FNGD): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.