The inverse ETFs are not like other investments. It is this type of investment that has Goldman Sachs in front of congress in 2010. These are not illegal investments but Goldman Sachs did it in a way that deceived their investors and that is the reason they have to answer to congress for it.
The inverse investment is one that is the exact opposite of a normal investment. When a stock or other investment is purchased, the hope is that it will increase in value. When you invest in an inverse or bear ETF, you hope the index in which it is reflective of fails or goes down in value. You are basically hoping the sector you have invested in drops significantly in value
The most common inverse or bear ETFs have a counter bull ETF. This gives the investor a choice which way that particular item or sector will go. Most of these are valued at twice or three times the true value.
Not all of the companies that are offering these types of investments are doing well with them. Announced on April 27, 2010, Rydex is shutting down its leveraged and inverse ETFs as of May 21, 2010. Until that time, they will continue to trade them.
Rydex will continue to offer two of their leveraged ETFs. These two are the Rydex 2X S&P 500 ETF (RSU) and the Inverse Rydex 2X S&P 500 ETF (RSW). The assets of these ETF were $108 million and $90 million at the end of the first quarter.
The reason Rydex is getting out is the size of the market they have. The two largest brokers of these types of funds are ProShares with $24.5 billion in assets and Direxion with $5.0 billion in assets.
The inverse ETFs are a great way to hedge a bet that a certain area of the market is about to plummet. You are betting on a failure with this type of ETF investing, so tread carefully.
For additional resources about ETF on this website, please view Fidelity ETF.
If you would like other investing news from Vanguards, then please try Fidelity Small Cap Value Fund (FCPVX) on our sister site mutualfundexplorer.com or Vanguard Lifecycle Funds on bestmutualfundsnow.com for other investing news.
We strive to bring you the latest and most accurate data possible from the home sites of the investment institutions we name. Always remember – the bigger the risk, the larger the reward or loss. Invest with caution.
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great post as usual!