Three Obscure Inverse ETFs to Get to Know
Stocks are soaring on Friday on the back of a "just right" jobs report. The addition of 175,000 new jobs last month beat estimates, but was not so good that the Federal Reserve needs to consider immediately ending quantitative easing. As perverse as that logic is, there is no getting around the fact that stocks are up today and in a satisfy-me-now type of world, that is all most traders care about.
Assuming today's gains hold, or are built upon, the S&P 500 will be in the green over the past month, no small feat given the index's dismal end to last month. However, one good day for stocks does not mean every asset class or sector is worth dancing with.
There are pockets of weakness in this market that make some inverse ETFs increasingly alluring in the near-term and it should be emphasized the following unheralded inverse plays are meant to be just that: Short-term trades.
ProShares Short High Yield (NYSE: SJB)
As was noted earlier this week, traders are finally discovering SJB and their timing looks good. Amid concerns about rising interest rates and moves away from riskier assets, investors are looking to reduce duration in their fixed income portfolios or parting ways with junk bonds altogether.
Professional traders have previously shorted the SPDR Barclays Capital High Yield Bond (NYSE: JNK) because of its tracking error as a way of establishing bearish positions in junk bond ETFs. No need to do that when one can just be long SJB. SJB, which is not leveraged, seeks daily investment results that are the inverse of the Markit iBoxx $ Liquid High Yield Index. That is the index tracked by the iShares iBoxx $ High Yield Corporate Bond Fund (NYSE: HYG).
ProShares UltraShort Australian Dollar (NYSE: CROC)
Simply put, the Australian dollar is under siege. The world's 12th-largest economy is slowing. The Reserve Bank of Australia is slashing interest rates and the unwinding of the carry trade is punishing the Aussie. Not to mention the fact that hedge funds are practically tripping over themselves to short the Aussie.
The Aussie has fallen about nine percent against the U.S. dollar since early May and that slide has sent traders running into CROC. The, which turns one next month, has seen inflows of over $12 million since May 5. CROC has a bullish cousin, the ProShares Ultra Australian Dollar (NYSE: GDAY). CROC and GDAY are double-leveraged.
ProShares UltraShort Utilities (NYSE: SDP)
When it comes to inverse sector ETFs, it is not unreasonable to say plenty of ETF investors are familiar with at least one or two of these products that track the financial services sector. Perhaps they even know about an inverse play or two on the energy or technology sectors.
The fact that the ProShares UltraShort Utilities had just $2.25 million in assets under management at the end of the first quarter says not a lot of folks not there is a way to establish a double-leveraged, inverse position on embattled utilities stocks.
Interestingly, SDP has raked in almost $3.5 million in new assets since May 1, during a time in which the Utilities Select Sector SPDR (NYSE: XLU) has tumbled eight percent. SDP does not attempt to deliver twice the daily inverse returns of XLU's index. Rather, SDP does that with the Dow Jones U.S. Utilities Sector Index, which is the index tracked by the iShares Dow Jones U.S. Utilities Sector Index Fund (NYSE: IDU).
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