Best Inverse ETFs of 2023

Caitlyn Moorhead
MF3d / Getty Images/iStockphoto
MF3d / Getty Images/iStockphoto

When your investment strategy focuses on profiting from negative returns, it is imperative to be aware of the pros and cons of being a contrarian. It is similar to playing devil’s advocate, but at poker. Exchange-traded funds, or ETFs, are bundles of securities sold as a fund. The counterpart to these would be inverse ETFs.

See: 3 Things You Must Do When Your Savings Reach $50,000

Typically only more experienced investors buy inverse ETFs and use them to leverage their positions or hedge against other positions.

What Is an Inverse ETF?

Where regular ETFs are traded on an exchange like a stock, inverse ETFs take the opposite side of a trade. Essentially, when an underlying asset or market index is declining, inverse ETFs use derivative contracts to create positive returns. The expected returns can deviate, which is why many experts advise not to hold on to inverse ETFs for more than a day or so.

How ETF Prices Are Set Up

To calculate the net asset value of an ETF, you take the sum of the assets in the fund, subtract any liabilities and then divide that total by the shares outstanding. Data that is calculated daily for ETFs and inverse ETFs include the following points.

  • Closing assets of the fund

  • Total cash in the fund that day

  • What the fund is holding

  • Net asset value

The 7 Best Inverse ETFs

  1. Direxion Daily S&P 500 Bear 3X (SPXS)

  2. Proshares Short 20+ Year Treasury (TBF)

  3. Proshares Short High Yield (SJB)

  4. Proshares Short MSCI EAFE (EFZ)

  5. Proshares Short Russell2000 (RWM)

  6. Proshares UltraPro Short QQQ (SQQQ)

  7. Tuttle Capital Short Innovation (SARK)

1. Direxion Daily S&P 500 Bear 3X (SPXS)

  • Price: $21.33

  • Assets: $833.66 million

The benchmark S&P 500, when declining, offers ample opportunity for investors to shorten the stock market. The goal of buying shares of the Direxion Daily S&P Bear 3X when the S&P 500 is declining is to profit from these declines. This way, the inverse returns on SPXS trade swaps can be three times that of the S&P 500.

2. Proshares Short 20+ Year Treasury (TBF)

  • Price: $21.39

  • Assets: $437.7 million

When it comes to pricing, short-term Treasurys tend to be less volatile than long-term Treasurys. Proshares Short 20+ Year Treasury corresponds to the inverse of the daily performance of the ICE U.S. Treasury 20+ Year Bond Index.

3. Proshares Short High Yield (SJB)

  • Price: $18.46

  • Assets: $324.51 million

Proshares Short High Yield is good for traders looking to benefit and profit from declines in the junk bond market. SJB corresponds to the inverse of the daily performance of the Markit iBoxx $ Liquid High Yield Index.

4. Proshares Short MSCI EAFE (EFZ)

  • Price: $19.22

  • Assets: $109.75 million

Proshares Short MSCI EAFE is more for when international stocks are declining. It corresponds to the inverse of the daily performance of the MSCI EAFE Index, which tracks the performance of stocks in such markets as Europe and Asia. Other countries specifically weighted in this index include the following.

  • Australia

  • France

  • Germany

  • Japan

  • Switzerland

  • United Kingdom

5. Proshares Short Russell2000 (RWM)

  • Price: $24.12

  • Assets: $451.84 million

Approximately 2,000 companies make up the market-cap weighted index of the Russell 2000 Index, which corresponds to the inverse ETF Proshares Short Russell2000. RWM does not own shares in Russell 2000 companies but does buy swap contracts. The Russell 2000 Index is largely made up of the following.

  • Health care stocks

  • Tech and consumer discretionary stocks

  • Financial names

  • Industrials

6. Proshares UltraPro Short QQQ (SQQQ)

  • Price: $51.28

  • Assets: $3.53 billion

ProShares UltraPro Short QQQ corresponds to three times the inverse of the daily performance of the Nasdaq 100 Index, which tracks the biggest companies that trade on the Nasdaq stock exchange. Basically, you make short-term bets against the expectations of how the Nasdaq 100 will perform.

7. Tuttle Capital Short Innovation (SARK)

  • Price: $51.57

  • Assets: $317.76 million

The Ark Innovation (ARKK) ETF corresponds to the inverse ETF Tuttle Capital Short Innovation. The goal of SARK is to return the inverse in a single trading session based on ARKK’s performance. ARKK mostly invests in high-value commodities such as the following.

Final Take

Just when you think you have a handle on what ETFs are and how to invest, the market has to throw inverse ETFs at you — just to keep you on your toes. Dealing with inverse ETFs is best suited for experienced or professional investors and traders. If you do invest in inverse ETFs, be aware that experts advise to only hold on to them in a very short-term capacity.

FAQ

Inverse ETFs are complicated and best suited for experienced traders. To help you learn more, here are the answer to some common questions.

  • What is the best inverse ETF?

    • Some of the projected best inverse ETFs include:

    • – Direxion Daily S&P 500 Bear 3X (SPXS)

    • – Proshares Short 20+ Year Treasury (TBF)

    • – Proshares Short High Yield (SJB)

    • – Proshares Short MSCI EAFE (EFZ)

    • – Proshares Short Russell2000 (RWM)

    • – Proshares UltraPro Short QQQ (SQQQ)

    • – Tuttle Capital Short Innovation (SARK)

  • Are inverse ETFs a good idea?

    • Inverse ETFs are a good idea for professional traders, as experienced investors buy inverse ETFs and use them to leverage their positions or hedge against other positions -- when an underlying asset or market index is declining, inverse ETFs use derivative contracts to create positive returns.

    • The expected returns can deviate, which is why many experts advise not to hold inverse ETFs for more than a day or so. These are more nuanced forms of buying and investing.

  • What is an example of an inverse ETF?

    • Though recommended for more experienced day traders, good examples of inverse ETFs to invest in 2023 include:

    • – Direxion Daily S&P 500 Bear 3X (SPXS)

    • – Proshares Short 20+ Year Treasury (TBF)

    • – Proshares Short High Yield (SJB)

    • – Proshares Short MSCI EAFE (EFZ)

    • – Proshares Short Russell2000 (RWM)

    • – Proshares UltraPro Short QQQ (SQQQ)

    • – Tuttle Capital Short Innovation (SARK)

  • Is QQQ an inverse ETF?

    • Invesco QQQ Trust (QQQ) is not an inverse ETF – it is based on the Nasdaq 100. ProShares UltraPro Short QQQ (SQQQ), however, is an inverse ETF corresponding to three times the inverse of the daily performance of the Nasdaq 100 Index.

Information is accurate as of market closing on Jan. 9, 2023.

This article originally appeared on GOBankingRates.com: Best Inverse ETFs of 2023

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