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5 Best Inverse-Leveraged ETFs of September

5 Best Inverse-Leveraged ETFs of September

Wall Street has been being badly hit in September as Fed’s aggressive rate hikes have sparked fears of a recession. The three major bourses are in deep red over the past month. The S&P 500 and Dow Jones are down 8.2% and 7.7%, respectively, while the tech-heavy Nasdaq Composite Index underperformed, plunging 9%.

This has resulted in huge demand for inverse or inverse-leveraged ETFs as these fetch outsized returns on bearish sentiments in a short span. Direxion Daily MSCI Real Estate Bear 3X Shares ( Free Report) , Direxion Daily Semiconductor Bear 3x Shares ( Free Report) , MicroSectors FANG & Innovation -3x Inverse Leveraged ETN ( Free Report) , ETFMG 2x Daily Inverse Alternative Harvest ETF ( Free Report) and Direxion Daily Small Cap Bear 3x Shares ( Free Report) might continue their strong performance if sentiments remain the same.

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

The S&P 500 hit lows last seen in late November 2020, while the Dow Jones Industrial Index fell into bear territory early this week. The renewed selling pressure came after Fed Chair Jerome Powell raised interest rates by another 75 bps. This marks the third consecutive rate hike of 0.75% and pushed the benchmark interest rate to 3.0-3.25%, the highest level since 2008 (read: ETFs That Won After Fed Rate Hike).

With inflation nearly at a 40-year high, the central bank also signaled that additional large rate hikes were likely at the upcoming meetings as it combats inflation. Fed officials now expect the federal funds rate in the range of 4.25% to 4.5%, a full percentage point above 3.25% to 3.5% to end 2022 that was projected in June. This means that the central bank could approve another three-quarter point hike at its November meeting and then a half-point rate rise in December. Economists warned that the rapid tightening would hurt the labor and housing markets, thereby pushing the economy into recession and impacting the stock market.

Direxion Daily MSCI Real Estate Bear 3X Shares ( Free Report) – Up 65.2%

Direxion Daily MSCI Real Estate Bear 3X Shares seeks to deliver three times the inverse performance of MSCI US REIT Index. It has AUM of $202.8 million and an average daily volume of around 468,000 shares.

Direxion Daily MSCI Real Estate Bear 3X Shares charges 95 bps in fees per year (read: Short Rate-Sensitive Sectors With These ETFs).

Direxion Daily Semiconductor Bear 3x Shares ( Free Report) – Up 57.9%

Direxion Daily Semiconductor Bear 3x Shares targets the semiconductor corner of the technology sector with three times inverse leveraged exposure to the ICE Semiconductor Index.

Direxion Daily Semiconductor Bear 3x Shares has amassed about $545.9 million in its asset base while charging 95 bps in fees per year. Volume is good as it exchanges 66.7 million shares per day on average.

MicroSectors FANG & Innovation -3x Inverse Leveraged ETN ( Free Report) – Up 52.1%

MicroSectors FANG & Innovation -3x Inverse Leveraged ETN is linked to the three times leveraged inverse performance of the Solactive FANG Innovation Index. The index tracks the stock prices of 15 large-capitalization, highly liquid U.S. technology stocks.

With AUM of $20.5 million, MicroSectors FANG & Innovation -3x Inverse Leveraged ETN has an expense ratio of 0.95% and trades in an average daily volume of 260,000 shares.

ETFMG 2x Daily Inverse Alternative Harvest ETF ( Free Report) – Up 43.2%

ETFMG 2x Daily Inverse Alternative Harvest ETF provides leveraged inverse exposure to companies within the cannabis ecosystem bene¿¿¿tting from global medicinal and recreational cannabis legalization initiatives. It measures the two times opposite performance of the return of the Prime Alternative Harvest Index.

ETFMG 2x Daily Inverse Alternative Harvest ETF has amassed $1.4 million and trades in average daily volume of 24.000 shares. It charges 95 bps in fees per year.

Direxion Daily Small Cap Bear 3x Shares ( Free Report) – Up 39.9%

Direxion Daily Small Cap Bear 3x Shares provides three times inverse exposure to the Russell 2000 Index, charging 94 bps in fees and expenses. It has been able to manage $540.3 million in its asset base with a heavy average daily volume of 9.4 million shares (read: Should You Buy Small Cap ETFs Now?).

Bottom Line

While the strategy is highly beneficial for short-term traders, it could lead to huge losses compared with traditional funds in fluctuating or seesawing markets. Further, their performances could vary significantly from the actual performance of their underlying index over a longer period compared to a shorter period (such as weeks or months) due to their compounding effect (see: all the Inverse Equity ETFs here).

Still, for ETF investors bearish on equities for the near term, either of the above products could make an interesting choice. Clearly, these could be intriguing for those with a high-risk tolerance and a belief that the “trend is the friend” in this specific corner of the investing world.

Written by Susan Bellini