After a fantastic year for US stocks, most investors are focused on finding ways to profit from more upside in the market. After all, the majority of investors only play the stock market to go one way… up.
Sometimes the best trades available aren't on the upside. Sometimes the best trades are taking a short position to profit from a market downturn.
One extremely important feature of ETFs is that they can be used to take bearish positions. In fact, investors can use ETFs to establish short positions on the market, specific sectors, certain asset classes, and more.
One reason is that going short can be a lucrative trading strategy. Another is that a properly placed short position can be an effective way to hedge your long portfolio.
But while there are multiple ways to short the market, many of these methods simply aren't appropriate for non-professionals.
For example, you can short sell stocks, but that requires a ton of margin and exposes you to potentially unlimited losses. There are futures and options that can be used, but derivatives products aren't for everyone.
In fact, even while the S&P was climbing 3% higher over the last month, you could have made 10% or more using a handful of different inverse ETFs over the same time.
Let's take a closer look at three inverse ETFs that are up 10% over the last month.
DWTI tracks an index of WTI crude oil futures contracts. It's designed to move three times as much as and in the opposite direction of these WTI crude oil futures contracts.
The drop in crude oil prices over the last month has sent shares of DWTI soaring. It's up more than 14% in the last month.
If crude oil continues to fall, DWTI will continue to gain.
YANG recently changed the index it tracks from the BNY China Select ADR Index to the FTSE China 25 Index. YANG is designed to move three times as much as and in the opposite direction as the FTSE China 25 Index.
Over the last month, YANG is up 12% as Chinese provinces have cut growth targets for the year. If economic growth continues to slump in China, YANG will continue to gain.
BRZS is a thinly traded inverse ETF that tracks an index designed to measure broad based equity market performance in Brazil. BRZS is designed to move three times as much as and in the opposite direction as the MSCI Brazil 25/50 Index.
Brazil is facing a host of issues that are hurting the economy and driving stocks lower. First and foremost, inflation is running near 6% while GDP growth is only 2%. That's just not going to cut it in a world where investors want superior growth from their emerging market investments. With little hope of improvement this year, BRZS should continue to rally as Brazilian stocks continue to slump.
It's easy to get caught up in the bullish momentum of US stocks and lose sight of profitable trades on the short side of the market. BRZS, YANG, and DWTI are three inverse ETFs that have proved that over the last month.