12 Most Popular ETFs to Hedge Against a Bear Market

A multitude of global economic factors have caused the recent plummet in the U.S. stock market. Oil prices dropped below the critical $40 threshold for the first time since 2009. China’s six-year low in manufacturing and perceived stock market bubble spurred a crash in July of the Asian economic powerhouse, and the long-awaited increase of U.S. interest rates is causing investors anxiety.

A culmination of these global market shifts likely explain the sharp U.S. market drop that began on Aug. 18 and lasted through Aug. 25.

The S&P 500 index fell -11% during this six-session period. The market recovered by +3.90% on Aug. 26 and improved slightly more (by +2.43%) on Aug. 27.

If these global economic factors continue to affect the market adversely, we could be heading toward a bear market, in which stock prices continue to decline for a year or more. Mutual funds are purchased for the long haul, and long-term investors might want to sit put and ride out the ebbs and flows of the market or purchase funds at lower prices. However, those who own individual stocks could hedge their investments by turning toward inverse exchange-traded funds (ETFs).

ETFs operate much like index funds. They’re designed to mimic the performance of the market index they’re built to track.

How they differ, however, is how often they can be purchased. Unlike index funds, which can be traded just once per day at close, ETFs are traded like stocks. This means they can be traded multiple times per day, down to by the second. Unlike traditional mutual funds, ETFs are considered passively managed investments, so they come with lower operating fees, much like index mutual funds.

Unlike regular ETFs that mimic index performance, inverse ETFs perform in the exact opposite direction of the index. Common leverage ratios for inverse ETFs are one, two and three times the performance of the index. So the -11% drop in the S&P 500 would have resulted in a +22% gain if you owned the two-times leveraged ProShares UltraShort S&P500 ETF, noted below.

Inverse ETFs decay in value over time as the markets typically rise. Because of this, inverse ETFs are not typically purchased for long-term investments, but can be very advantageous for short periods of time to offset market losses.

Credio identified the 12 most popular inverse ETFs—one for each market index included—ordered by the highest average volume of shares traded per day. These ETFs could provide investors with the opportunity to earn a return in the event of a continued market decline.

#12. YANG – Direxion Daily FTSE China Bear 3X ETF

Net Assets: $87.7 Million
Investment Style: Trading-Inverse Equity
Benchmark: FTSE China 50 NR USD

#11. RUSS – Direxion Daily Russia Bear 3X ETF

Net Assets: $45 Million
Investment Style: Trading-Inverse Equity
Benchmark: Market Vectors Russia TR USD

#10. BIS – ProShares UltraShort Nasdaq Biotech

Net Assets: $115 Million
Investment Style: Trading-Inverse Equity
Benchmark: NASDAQ Biotechnology TR USD

#9. EDZ – Direxion Daily Emrg Mkts Bear 3X ETF

Net Assets: $81 Million
Investment Style: Trading-Inverse Equity
Benchmark: MSCI EM GR USD

#8. ERY – Direxion Daily Energy Bear 3X ETF

Net Assets: $58.1 Million
Investment Style: Trading-Inverse Equity
Benchmark: S&P Energy Select Sector TR USD

#7. DXD – ProShares UltraShort Dow30

Net Assets: $198 Million
Investment Style: Trading-Inverse Equity
Benchmark: DJ Industrial Average TR USD

#6. FAZ – Direxion Daily Financial Bear 3X ETF

Net Assets: $267 Million
Investment Style: Trading-Inverse Equity
Benchmark: Russell 1000/Financial Services TR USD

#5. JDST – Direxion Daily Jr Gld Mnrs Bear 3X ETF

Net Assets: $56.9 Million
Investment Style: Trading-Inverse Equity
Benchmark: MV Global Junior Gold Miners NR USD

#4. DUST – Direxion Daily Gold Miners Bear 3X ETF

Net Assets: $161 Million
Investment Style: Trading-Inverse Equity
Benchmark: NYSE Arca Gold Miners TR USD

#3. SQQQ – ProShares UltraPro Short QQQ

Net Assets: $292 Million
Investment Style: Trading-Inverse Equity
Benchmark: NASDAQ 100 TR USD

#2. SDS – ProShares UltraShort S&P500

Net Assets: $1.24 Billion
Investment Style: Trading-Inverse Equity
Benchmark: S&P 500 TR USD

#1. TZA – Direxion Daily Small Cap Bear 3X ETF

Net Assets: $508 Million
Investment Style: Trading-Inverse Equity
Benchmark: Russell 2000 TR USD

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