It seems the stock markets saw a splendid run last year only to
nosedive this year. The investing climate has not really been in
favor of the market since the beginning of 2014. Record chill
winter, a slew of downbeat economic numbers, overvaluation in the
U.S. stock markets, geo-political tension pertaining to Eastern
Europe, sluggish growth in other developed nations of Euro zone and
Japan and the hard landing in China - all played their roles to
pull the market down from the record high level.
To add to this, the Fed was also taking itself apart from the bond
buying business compounding investors' jitters. While the bust of
tech bubble and the high beta pain badly punished the U.S. equity
markets, a few foreign markets also saw a sharp sell-off. While
this recent spell of stock market turbulence marred the equity
markets, it gave some investing corners reasons to cheer for. These
are the inverse or bear ETFs.
We have highlighted four ETFs that have benefitted from this recent
widespread crash and would be in focus in the weeks ahead, if the
situation persists (read:
3 Low Risk ETFs for a Stormy Market
ProShares Ultra Short Russell 2000 Growth (
Though the U.S. shows the way, global growth outlook has been muted
this year with the IMF recently
global growth forecast on emerging market concerns.
Not-so-enthusiastic U.S. data this year actually spurred concerns
about its true growth picture among investors. As a result, growth
ETF saw massive sell-offs which in turn helped the inverse product
on Russell 2000 Growth index reap some gains.
This ProShares ETF corresponds to double the opposite exposure to
the Russell 2000 Growth Index on a daily basis. The fund
accumulated about $5.9 million in assets and charges 95 bps in fees
per year which is in line with the category average. SKK was up
13.1% (as of April 10, 2014) last week.
Daily Small Cap Bear 3X Shares ETF (
Small-caps stocks are known for their highly volatile nature. Last
year, small-caps were pretty overvalued and had a spectacular run
iShares Russell 2000 Index
) returning about 35%. In this volatile market, small caps were
likely be the most beaten down.
Also, investors should note that the outperformance of small caps
is normally backed by the growing risk appetite among investors.
With risk-off trade sentiment largely prevailing in the market, TZA
stood to gain.
This Direxion ETF provides daily investment results of three times
the inverse performance of the Russell 2000 Index. Unlike the case
of SKK, this index takes care of all-capitalization - growth, value
and blend with almost equal share.
Direxion Daily Japan Bear 3x Shares ETF (
Japan - the world's third largest economy - has been on a tear
since the start of the year thanks to its
growth in the final quarter of 2013. Decline in private consumption
and widening of trade deficit were held as culprits. To add to
this, sales tax hike in April 2014 after 17 years - in an attempt
to curtail on mounting national debt - will likely lead to further
IMF projected Japan's growth to clock
1.4% this year
which is a reduced number from the previous projection of 1.7%.
Growth is also expected to decelerate further to 1% in 2015. As a
result, analysts and portfolio managers turned increasingly bearish
on Japan which lifted the demand for Japan-based bear fund -
Launched in June 2103, JPNS looks to give thrice the inverse
exposure of the MSCI Japan Index on a daily basis. The product so
far has amassed about $3.0 million in assets and trades in a volume
of about 4,000 shares a day.
JPNS is a reasonable choice in the inverse equities ETF space
charging 95 bps a year. Since the underlying sector is heavy on
Consumer Discretionary, Financials and Industrials, JPNS can be
tagged as the contrary image of these sectors in Japan.
JPNS gained about 15% in the last week (as of April 10, 2014) while
the year-to-date performance was even greater at 31% (read:
Short Japan with these Inverse ETFs
RUSS Daily Russia Bear 3x Shares ETF (
Russia has been the most talked about investment destination since
the start of this year owing to its issues with Ukraine followed by
its invasion in Crimea which was earlier a Ukrainian territory.
This sortie was viewed as the utter violation of international law
by the West. As a protest of Russian act, the U.S. and the European
Union imposed some travel bans and asset freezes on Russian
Is It Time to Flee Russian ETFs?
While the situation was fuming in the initial phase of the year,
some of Putin's dovish comments like there will be no further
maneuver in Ukraine put this heightened geo-political tension to
rest. But the tension again flared up of late when
in the Ukraine turned aggressive. This has provoked qualms that
Russia might replicate its Crimea Annexation act in eastern Ukraine
which in turn goaded gains in Russian bearish funds (read:
4 Leveraged/Inverse ETFs Soaring in 2014
RUSS is also a triple leverage inverse equity fund of Russia.
Direxion launched this fund in May 2011. The fund has so far
generated $18.6 million in assets and trades in a volume of 300,000
shares a day. RUSS charges 95 bps in fees.
RUSS lost 4.38% last week though the fund gained 57% this year.
While smart returns provided by the aforementioned ETFs can entice
any investor, we would like to note as a word of caution that bear
ETFs are only appropriate for active investors who can manage their
portfolio on a daily basis. Zacks does not rank inverse and
leveraged ETFs in view of their short-term performance objectives,
but clearly the few outlined above have benefited from recent
trends in the market.
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DIRX-D JPN 3XBR (JPNS): ETF Research Reports
DIRX-D RUS BR3X (RUSS): ETF Research Reports
PRO-ULS R2000 G (SKK): ETF Research Reports
DIRX-SC BEAR 3X (TZA): ETF Research Reports
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