6 Inverse ETFs Riding High On Tech Sell-Off This Week

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An outsized surge in U.S. yields took a toll on investors’ sentiment, leading to a risk-off trade especially in high-flying technology names. This is because tech stocks emerged as the biggest winner amid the pandemic thus becoming expensive.

Higher rates tend to hit hard the technology sector as it relies on easy borrowing for superior growth. Their value depends heavily on future earnings and as long-term yields rise, it lowers the present value of companies’ future earnings. The S&P 500 Information Technology Sector Index plunged 4.5% over the past week. In fact, the tech-heavy Nasdaq Composite Index has dropped 5.4% this week after registering the biggest sell-off on Feb 25 in four months.

Additionally, Tesla’s (TSLA - Free Report) crazy rally, which powered most of the technology sector last year, has fizzled out. The stock has plunged 25% and lost about $200 billion in market value since Feb 8 when the electric-car firm said that it had spent $1.5 billion on bitcoin in a bid to boost returns on cash.

The sell-off has resulted in a spike in 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 the traditional ones in fluctuating or seesawing markets. Further, their performance could vary significantly from the actual performance of the underlying index over the longer period compared to a shorter period (such as weeks or months).

We have highlighted six leveraged inverse ETFs from the tech space that piled up double-digit gains over the past week though these involve a great deal of risk when compared to traditional products.

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