ETFs That (Supposedly) Thrive When the Market Dives
In June 2006, an outfit called ProShares introduced the first ETFs designed to short the market. That means these inverse ETFs are designed to go up as their market benchmark goes down, and vice versa. The four original ProShares ETFs are the Short QQQ fund (PSQ), which is betting against the NASDAQ-100; the Short S&P500 (SH); the Short MidCap400 (MYY); and the Short Dow30 (DOG).
As it happens, this category of ETFs and exchanged-traded notes (ETNs) has proliferated like no other. You can now find well over 100 exchange-traded products, from ProShares, PowerShares, Direxion, Guggenheim, and iPath, allowing you to short anything and everything, including the kitchen sink (see the ProShares UltraShort Consumer Goods ETF [SZK]).
From the U.S. stock market, to various industry sectors, to the stock markets of other countries, to Treasury bonds, to gold and oil, it is now easy to bet that prices are heading south.
And for the truly pessimistic investor, many of these short ETFs now allow you to bet in multiples. In other words, if the market falls, these funds promise to rise on a leveraged basis.
For example, the Direxion Daily Natural Gas Related Bear 2X Shares (FCGS) is designed to rise 10 percent if the market in natural gas falls 5 percent. And the Direxion Daily Semiconductor Bear 3x Shares (SOXS) is designed to rise 30 percent if the market for semiconductor stocks falls 10 percent.