Go to the Globe and Mail homepage

Jump to main navigationJump to main content

(iStockphoto)
(iStockphoto)

ETFs

Current conditions favour inverse equity ETFs Add to ...

Equity markets around the world as well as most major sectors showed technical signs of an intermediate peak last week.



“Buy when it snows, sell when it goes” is happening earlier than usual this year, typical of U.S. equity markets in a U.S. Presidential election years and years ending in “2”.





Now is a good time to examine Exchange Traded Funds that appreciate when equity markets and sectors enter intermediate downtrends.

More related to this story

No shortage of choices U.S. exchanges list 17 non-leveraged inverse equity ETFs and the Toronto Exchange lists five.

All inverse ETFs are based on short-term notes and futures contracts designed to track the inverse performance on a daily basis of an underlying equity or sector index. Management expense ratios tend to be higher than average. Average management expense ratio for the 17 U.S. listed ETFs is 0.96 per cent and average expense ratio for the five Canadian listed ETFs is 1.15 per cent

The most actively traded inverse ETF is Short S&P 500 Proshares . Institutional investors frequently use this ETF to hedge against a diversified portfolio of U.S. equities that are chosen to outperform the market at a time when the S&P 500 Index technically is overbought.

Other actively traded inverse U.S. equity index ETFs include Short Russell 2000 Proshares , Short Dow 30 Proshares , Short MSCI Emerging Market Proshares , Short QQQ Proshares , Short MSCI EAFE Proshares , Short MidCap 400 Proshares , Short Small Cap 600 Proshares .

Canadian inverse equity index ETFs include Horizons BetaPro S&P /TSX 60 Inverse ETF and Horizons BetaPro S&P 500 Inverse ETF .

U.S. sector inverse ETFs include Short Financials Proshares , Short Oil & Gas Proshares , Short Basic Materials Proshares and Short KBW Regional Banking Proshares .

Canadian sector inverse ETFs include Horizons BetaPro S&P/TSX Capped Financials Inverse ETF , Horizons BetaPro S&P/TSX Capped Energy Inverse ETF and Horizons BetaPro Global Gold Inverse ETF .

Another ETF of note is the AdvisorShares Active Bear ETF . Unlike other inverse ETFs that hold futures contracts and notes, it holds short positions in individual equities that trade on U.S. exchanges.

Don Vialoux is the author of free daily reports on equity markets, sectors, commodities and Exchange Traded Funds. Daily reports are available at www.timingthemarket.ca/. He is also a research analyst for Horizons Investment Management Inc. All of the views expressed herein are his personal views although they may be reflected in positions or transactions in the various client portfolios managed by Horizons Investment Management.

 

Topics:

In the know

Most popular videos »

Highlights

More from The Globe and Mail

Most popular