6 Best Leveraged Inverse ETFs Of Past Week

With optimism over American-Sino trade hopes fading, the U.S. stock market has again started to falter after a smooth ride in September.

Earlier this week, the White House expanded the trading blacklist by adding 28 Chinese companies, including artificial intelligence firms. It cited the role of these firms in Beijing’s repression of Muslim minorities in northwest China just days before high-level trade talks are set to resume in Washington on Oct 10. Additionally, the Trump administration is slapping visa bans on Chinese officials linked to the mass detention of Muslims.

Further, Bloomberg reported that the Trump administration is moving ahead with discussions around possible restrictions on capital flows into China, with a focus on investments made by U.S. government pension funds. The series of steps raised doubts over the success of U.S.-China trade talks.

If these weren’t enough, the latest bout of downbeat data also added to the woes. The U.S. producer prices posted the biggest drop in eight months in September while the Institute for Supply Management’s purchasing managers index for the manufacturing sector dropped to 47.8 in September, representing the lowest level in more than a decade.

The combination of factors has resulted in strong demand for inverse or inverse leveraged ETFs. These products either create a short position or a leveraged short position in the underlying index through the use of swaps, options, future contracts and other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a short period of time, provided the trend remains a friend.

However, these funds run the risk of huge losses compared with traditional funds in fluctuating or seesawing markets. Further, their performance could vary significantly from the actual performance of the underlying index over the longer period when compared to a shorter period (such as weeks or months).

We have highlighted six leveraged inverse ETFs that are up more than 15% over the past week though these involve a great deal of risk when compared to traditional products. This trend might continue at least for the near term if sentiments remain the same.

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