Trading has been extremely choppy this year as the market is not getting any cue of a recovery and is fully in the grip of bears. All major global indices are in deep red. Among the top ETFs, the S&P 500 based SPY is off 9% so far this year, Dow Jones Industrial Average-based DIA has shed 7.9% and the Nasdaq-100 based QQQ has moved lower by 13.9%.
The situation is similar across the pond with Vanguard FTSE Europe ETF (VGK) losing 11.4%. Emerging market ETF iShares MSCI Emerging Markets (EEM) has incurred losses of 9.3%, and all-world ETF iShares MSCI ACWI (ACWI) is off 10.1%. iShares Asia 50 ETF (AIA) has moved down by 11.6% so far this year (as of February 9, 2016).
Heightened risk aversion is prevalent in the market with safe-haven assets gathering all the attention and enjoying sweet returns. Investors have, in fact, turned their faces away from risky assets. Meanwhile, earnings recession has been rife at home and abroad. Fourth-quarter results from 62% of the S&P 500 components that are out, point at weakness on all sides.
The growth picture has been bleak, reflecting prolonged global growth worries, a stronger greenback and a persistent decline in oil prices. As of now, corporate projections and macroeconomic instability suggest that the earnings weakness is here to stay (read: Earnings Recession Put These ETFs in Focus).
All in all, the past one month was absolutely a forgettable stretch for equities and the related ETFs. And the bear ETFs got a sudden spike. In this broad-based gloom, a few areas specifically played a pivotal role in making the market go berserk. Quite expectedly, the inverse versions of these particularly beaten-down equities were among the top-performers in the last one-month frame (as of February 8, 2016).
So for investors who believe that the trend is friend and seek to ride the current trend may choose a short-term play on the following inverse leveraged ETFs. These ETFs returned at least 20% in the last four weeks (as of February 9, 2016).
Daily Financial Bear 3X Shares (FAZ) – Up 23.9%
Another issue in the last one month was renewed concerns in the global financial sector. The stress in the European and Japanese banking sector due to the negative interest rates launched by their respective central banks had a ripple effect in the U.S. banking sector. Several big bank stocks fell in apprehension of sluggish global growth which would translate into subdued client activities and higher credit risk. As a result, the triple leverage inverse ETF that tracks The Russell 1000 Financial Services Index lost 23.9% in the last one-month period (as of February 10, 2016) (read: Bank ETFs in Trouble?).
Daily Small Cap Bear 3X Shares (TZA) – Up 21.3%
U.S. small-cap stocks have also been in a rough stretch as the economy lost steam from the fourth quarter of 2015. As a result, the Russell 2000 Index underperformed lately giving a boost to the triple leverage inverse small-cap ETF – TZA, which was up 21.3% in the last one month (as of February 10, 2016).
UltraPro Short QQQ (SQQQ) – Up 20.4%
