Though 2013 was a banner year for the U.S. equity markets, 2014
has seen a weak start signaling a reversal of the bullish trend.
Most of the stocks have tumbled due to weak job numbers and
stubbornly low inflation in December that have eroded investor
The Q4 2013 earnings season is in full-gear, with earnings failing
to impress the equity markets so far. The numbers look weak and the
guidance is uninspiring with sub-par outlook for the coming
quarters for most companies (read:
Buy these ETFs to Profit from the Earnings
The sentiment in equity markets is becoming more bearish of late
thanks to emerging market weakness and signs of slowdown in the
world's second largest economy that have raised concerns over
global economic growth. Disappointing manufacturing data and the
debt default worries are weighing on Chinese economic growth.
Last week, the S&P 500 witnessed the worst decline since June
2012 while the Dow saw the sharpest fall since May 2012, suggesting
a bigger drop in the days ahead.
Investors are losing faith in some of the big developing nations,
resulting in losses in the emerging market currencies. This is
especially true as the market saw an additional $10 billion cut in
the U.S. monetary stimulus plan at the two-day meeting this week.
This boost to tapering looks to in a surge in dollar against the
basket of currencies and the prospect of rising interest
Further, growing political problems and financial instability in
many countries including China, Argentina, Turkey, Ukraine, South
Africa and Brazil are also adding to the woes (read:
3 Emerging Market ETFs to Watch for Political
Issues in 2014
The contagion in emerging nations has been spilling over to the
global market and this trend is likely to continue at least for the
near term. Further, the largest and ultra-popular SPDR S&P 500
), with an asset base of around $166.7 billion and average daily
volume of around 109 million shares, has seen more than $6.1
billion in outflows so far this year.
While this might not seem like a huge number, investors should note
that this is nearly three times greater than the second biggest
) in the same time frame. Given this outflow and pessimism over
global economic growth, the appeal of some equity ETFs seems to be
In such turbulent times, investors are shifting their exposure to
safe havens like Treasuries and gold. While these are good bets,
investors could also make a short-term play on the equity markets
with the inverse ETFs (see:
all the Inverse Equity ETFs here
For these investors, we have highlighted the three most popular
inverse ETFs that could deliver higher returns if the current trend
continues going forward:
ProShares Short S&P 500 ETF (
This fund seeks to deliver inverse exposure to the daily
performance of the S&P 500 index. It is the most popular and
liquid ETF in the inverse equity space with AUM of nearly $1.5
billion and average daily volume of around 3.3 million shares. The
fund charges 90 bps in fees and expenses. The product added over 3%
in the year-to-date time frame.
ProShares Short Russell 2000 ETF (
This ETF targets the small cap segment of the broad U.S. equity
market from a bearish perspective. This is done by tracking the
inverse performance of the Russell 2000 Index.
The fund has amassed $457.4 million and trades in heavy volume of
1.3 million shares per day. Expense ratio came in at 0.95%. RWM is
up 1.42% so far this year.
ProShares Short Dow 30 ETF (
This product seeks to deliver inverse exposure to the daily
performance of the Dow Jones Industrial Average, which includes 30
blue chip companies. The fund has managed $273.9 million in its
asset base while it charges 95 bps in fees and expenses.
Volume is moderate as it exchanges less than 395,000 shares per day
on average. DOG gained more than 4% in the year-to-date time frame
Will 'Dogs of the Dow' ETF Continue to Shine in
As a caveat, investors should note that these products are suitable
only for short-term traders as these are rebalanced on a daily
Still, for ETF investors who are bearish on the equity market for
the near term, either of the above products could make for an
interesting choice. Clearly, a near-term short could be intriguing
for those with high-risk tolerance, and a belief that the "trend is
your friend" in this corner of the investing world.
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PRO-SHRT DOW30 (DOG): ETF Research Reports
PRO-SHRT R2000 (RWM): ETF Research Reports
PRO-SHRT S&P500 (SH): ETF Research Reports
SPDR-SP 500 TR (SPY): ETF Research Reports
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