Market Overview

Using ETF's As Hedges (FAZ, TYP, EDZ)

Exchange traded funds (ETF's) have been created for nearly every country, sector or type of instrument. ETF's can be an effective tool in juicing gains on the long side or hedging profits on the downside if things seem a bit more bearish out there.

Investors may want to take a look at three ETF's highlighted here to help protect them from losing their hard earned gains. The three ETF's being looked at are Short Dow30 ProShares (NYSE: DOG), UltraShort S&P500 ProShares (NYSE: SDS) and Direxion Daily Emrg Mkts Bear 3X Shares (NYSE: EDZ).

The first two ETF's can be considered as hedges that you can hold for a time frame of longer than a few days as they are not leveraged and do not reset at the end of every day trading day. The Short Dow30 ProShares and UltraShort S&P500 ProShares ETF's are broader market funds that cover a wide variety of sectors and if things are looking bleak, could help protect profits for long positions or even add to them.

DOG has an expense ratio of 0.95% while SDS has an expense ratio of 0.91%.

The last ETF uses leverage to juice its returns, using options and other forms of derivatives. This ETF is nothing more than a trading vehicle as most of the Direxion ETF's are. Barring a straight run up or down (depending whether the ETF is bullish or bearish), these leveraged ETF's tend to lose value over time.

The Direxion Daily Emrg Mkts Bear 3X Shares has an expense ratio of 0.95%.

Investors may want to look at these particular ETF's or do a search on bearish ETF's if they feel the economy is getting worse and stocks are set to see a long correction.

Posted-In: Sector ETFs Short Ideas Specialty ETFs Emerging Market ETFs Trading Ideas ETFs

 

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