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November 01, 2008 at 04:00 AM
The financial crisis that accelerated when Lehman Brothers Holdings (LEH) was pushed into bankruptcy protection sent chills through stock markets around the world. Exchange-traded funds (ETFs) tracking key equity benchmarks like the Dow Industrials, Nasdaq and S&P 500 continued their downward slide.
But not all is doom and gloom because there’s a bull market happening right now in bear market ETFs.
Bear market funds are designed to provide opposite performance of whatever index benchmark they follow. If stocks fall, bear or inverse ETFs are built to increase in value. Conversely when stocks rise, inverse ETFs fall in value.
ProShares are the largest family of bear market ETFs. Among the firm’s 40 inverse performing funds, all but eight are posting positive year-to-date performance. This sort of dominant performance gives you an idea of just how poorly global equity markets are performing.
The ProShares Short Dow 30 (DOG), which aims to deliver the opposite daily performance of the Dow Jones Industrial Average, has gained 12.6 percent on the year.
Some of this year’s biggest gainers are inverse ETFs that use leverage. The ProShares UltraShort MSCI EAFE (EFU) is ahead by 53.7 percent since the beginning of the year. The MSCI EAFE is a popular benchmark of international stocks, but its recent performance has really soured.
Even though media attention has been fixated on the horrific performance of financial stocks, other industry sectors like semiconductors have gotten hammered. As a result, the ProShares UltraShort Semiconductor (SSG) has gained 50.3 percent on the year.
