Gain Inverse Exposure With This Short ETF

To paraphrase Thomas Paine’s famous pamphlet, “The Crisis,” “These are the times that try investors’ souls.”

Indeed, while some recent days have been bright spots in an otherwise bleak market landscape, Forbes reported that the S&P 500 was down nearly 24% on the year through Sept. 30, and even reached its lowest level since November 2020. It is clear that the bears are still free to rampage across the market landscape.

The causes of this market devastation are what I frequently discuss in my newsletters and “Eagle Eye Opener” — a hawkish Fed ensuring ever-higher interest rates, COVID-19 lockdowns in China, rising oil and energy prices and the continuation of the war between Ukraine and Russia in Eastern Europe. Even though we are in an environment in which nearly every sector is in the red, all is not lost.

One way to generate profits during periods when the market is down is through the exchange-traded fund (ETF) ProShares Short QQQ ETF (NYSEARCA: PSQ). As its title suggests, this is an inverse ETF, meaning that it is built to go up in value when its parent index goes down.

Specifically, PSQ provides inverse exposure to a market-cap weighted index of the 100 largest firms on the NASDAQ index that are not financial companies. The fund’s managers then use swaps on the NASDAQ-100 ETF (QQQ), swaps on the index itself and NASDAQ-100 futures in order to provide the stated exposure.

At the same time, it is worth noting that this ETF, like its fellow inverse ETFs, is meant to provide its stated exposure each day. Investors who view it as a buy-and-hold investment will likely see irregular returns over a longer time.

As of Oct. 11, PSQ has been up 15.86% in the past month and up 8.31% for the past three months. It is currently up 39.61% year to date.

Chart courtesy of www.stockcharts.com

The fund has amassed $1.70 billion in assets under management and has an expense ratio of 0.95%.

In short, while PSQ does provide an investor with a way to invest in an inverse ETF, this kind of fund may not be appropriate for all portfolios. Thus, interested investors always should conduct their due diligence and decide whether the fund is suitable for their investing goals.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Intelligence Report, Investing Edge, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.