1/18/08

International & Domestic Inverse/Bear Market ETFs

If you think the markets will continue their decline, you might want to consider inverse ETFs. Some of these have become somewhat popular, so maybe you heard of them. But you probably haven't heard of all of them.

Inverse ETFs use various derivatives to behave in the opposite way of their underlying indexes. For instance, the inverse Dow 30 ETF (DOG) does the opposite of what the Dow Jones Industrial Average (DJIA) does. For example, if the DJIA falls 1.5%, DOG will rise by about 1.5%. The correlation is not perfect, but it's close.

An advantage of using inverse ETFs is that you can hold a short position while going long. In other words, it's like holding a regular stock, but you profit as if you have sold short. As there is no need for a margin account to do this, you are mitigating or eliminating some of the risks of selling short, which include losing more than your original investment.

If you're a bit more risk tolerant, you might want to consider leveraged inverse ETFs. Like the regular inverse ETFs, they go up when their underlying index goes down, but they do so twice as much. So, for example, if the DJIA falls 1.5%, the leveraged inverse ETF (DXD) will go up about 3%.

One last thing before the list. You should remember that inverse ETFs go down when the market goes up, and the leveraged ones go down twice as much. As over the long term the market tends to go up, it's probably best to use inverse ETFs to hedge your loses in rough times or for short term gains.

Here's the list. Some of them are thinly traded, so be careful. The expense ratios on all these ETFs are .95%. Unsurprisingly, they are all at or near 52 week highs.


Inverse International ETFs

Europe Australia Far East (EFZ)
Emerging Markets (EUM)

Leveraged Inverse International ETFs

FTSE/Xinhua China (FXP)
Europe Australia Far East (EFU)
Emerging Markets (EEV)
Japan (EWV)

Inverse Domestic Broad Indexes:

Nasdaq-100 (PSQ)
DJIA (DOG)
S&P 500 (SH)
S&P MidCap (MYY)
S&P SmallCap (SBB)
Russell2000 (RWM)

Leveraged Domestic Indexes:

Nasdaq-100 (QID)
DJIA (DXD)
S&P 500 (SDS)
S&P MidCap (MZZ)
S&P SmallCap (SDD)
Russell 2000 (TWM)
Russell 1000 Value (SJF)
Russell 1000 Growth (SFK)
Russell MidCap Value (SJL)
Russell MidCap Growth (SDK)
Russell 2000 Value (SJH)
Russell 2000 Growth (SKK)

Leveraged Inverse Domestic Sector ETFs

Dow Jones U.S. Basic Materials (SMN)
Dow Jones U.S. Consumer Goods (SCC)
Dow Jones U.S. Financials (SKF)
Dow Jones U.S. Health Care (RXD)
Dow Jones U.S. Industrials (SIJ)
Dow Jones U.S. Real Estate (SRS)
Dow Jones U.S. Semiconductors (SSG)
Dow Jones U.S. Oil & Gas (DUG)
Dow Jones U.S. Technology (REW)
Dow Jones U.S. Utilities (SDP)


European investors might be interested in these:

Inverse CAC 40

Leveraged Inverse CAC 40

Inverse DJ Euro Stoxx 50

Leveraged Inverse DJ Euro Stoxx 50