RWM, DOG, and HDGE were the best inverse ETFs Contrarian investors seeking to capitalize on stock market declines can profit during a bear...
RWM, DOG, and HDGE were the best inverse ETFs
The inverse ETF universe is comprised of about 10 ETFs, excluding leveraged ETFs and ETFs with less than $50 million in assets under management (AUM).The last bear market took place from February 19, 2020 to March 23, 2020, during which the total return for the S&P 500 was -33.8%.1 The best inverse ETF during the 2020 bear market, based on its total return between the two dates above, was the ProShares Short Russell 2000 (RWM). We examine the three best inverse ETFs of the 2020 bear market below. All numbers in this story are as of March 3, 2021.
Inverse ETFs can be riskier investments than non-inverse ETFs, because they are only designed to achieve the inverse of their benchmark's one-day returns. You should not expect that they will do so on longer-term returns. For example, an inverse ETF may return 1% on a day when its benchmark falls -1%, but you shouldn't expect it to return 10% in a year when its benchmark falls -10%. For more details, see this SEC alert.
ProShares Short Russell2000 (RWM)
Bear market return: 55.4%
Performance over 1-Year: -30.95%
Expense Ratio: 0.95%
Annual Dividend Yield: 1.20%
Average Trading Volume: 2,085,612
Assets Under Management: $254.83 million
Inception Date: January 23, 2007
Issuer: ProShares
RWM seeks to provide a daily return, before fees and expenses, that is -1x the daily performance of the Russell 2000 Index, an index which tracks the performance of the small-cap segment of the U.S. equity market.3 The ETF makes use of both ETF and index swaps to achieve its inverse exposure. Since the -1x exposure is for a single day, investors holding the fund for longer than a day will be exposed to compounding effects, causing returns to deviate from the expected inverse exposure.
ProShares Short Dow30 (DOG)
Bear market return: 47.3%
Performance over 1-Year: -20.44%
Expense Ratio: 0.95%
Annual Dividend Yield: 1.96%
Average Trading Volume: 907,272
Assets Under Management: $314.36 million
Inception Date: June 19, 2006
Issuer: ProShares
DOG aims to provide a daily return, before fees and expenses, that is -1x the daily performance of the Dow Jones Industrial Average (DJIA). The Dow is an index that tracks 30 large, publicly-owned blue chip companies on the New York Stock Exchange (NYSE).5 The ETF provides inverse exposure to these 30 stocks through the use of various swap instruments. Since the inverse exposure is daily, investors holding the fund for longer periods of time should not expect -1x performance. The fund uses DJIA swaps to obtain its inverse exposure.
AdvisorShares Ranger Equity Bear ETF (HDGE)
Bear market return: 47.3%
Performance over 1-Year: -43.48%
Expense Ratio: 3.36%
Annual Dividend Yield: 0.27%
3-Month Average Daily Volume: 1,093,326
Assets Under Management: $56.81 million
Inception Date: January 26, 2011
Issuer: Advisor Shares
HDGE seeks to achieve positive returns by shorting stocks listed on U.S. exchanges. The ETF uses a combination of quantitative and fundamental factors in order to build a portfolio of equities to short. Good candidates are stocks of firms with low earnings quality or aggressive accounting practices. However, shorting stocks is expensive, which results in high ETF fees.7 The fund's three biggest shorts are Canon Inc. (CAJ), a Japan-based manufacturer of copying machines, printers, cameras, and lithography equipment; Pros Holdings Inc. (PRO), a provider of business software services; and Snap-On Inc. (SNA), a tool and equipment manufacturer.
