Worried about the bear?
The current bull market, which celebrated its eighth birthday in March of this year, is the second-longest bull run in U.S. stock market history, behind only the monster move from 1987 through 2000. The advanced age of the rally — along with debt ceiling concerns and doubts over just how much of Trump’s pro-business agenda will become reality — has some investors worried about when it will all come tumbling down. Rather than go to cash and hide out in a bunker fearing the next crash, you could consider one or more of the following exchange-traded funds that range from safe hedges to aggressive trades that will profit amid a collapse.
Proshares Short S&P 500 (ticker: SH)
ProShares’ SH is one of the most basic and easy-to-understand hedging funds on the market. This ETF is designed to provide (before fees and expenses) the inverse daily returns of the Standard & Poor’s 500 index, meaning that if the broader market falls 1 percent in a given day, SH should gain 1 percent. This fund typically is used as a hedge by investors who want to remain in their buy-and-hold long positions — as the market and their holdings decline, SH provides positive returns that help counter some of their losses. Just note that, like many inverse funds, SH isn’t cheap.
Expenses: 0.89 percent, or $89 annually per $10,000 invested.
ProShares UltraPro Short S&P 500 (SPXU)
While even mom-and-pop investors can feel safe making short-term hedging bets using the SH, ProShares’ SPXU is an aggressive play that’s geared toward more experienced, agile traders. The SPXU is an inverse leveraged ETF that provides minus three times the daily returns of the S&P 500. Thus, if the index drops 1 percent, SPXU should surge by 3 percent. Naturally, the SPXU is a quick way to lose money if you bet wrong. Also important to note is that while this ETF will provide minus three times returns in a given day, due to its daily rebalancing, returns could be far better or worse than that the longer you hold the fund.
Expenses: 0.9 percent
ProShares Ultra Short Russell 2000 (TWM)
When the market starts to go risk-off, small-cap stocks are typically the first to go as investors look for shelter in blue chips like those found in the S&P 500. Thus, one of the best ways to get a jump on a jittery market is to go long ProShares’ TWM, which is designed to return double the inverse of the small-cap-laden Russell 2000. Despite having less leverage than SPXU, if the environment is right, TWM can be far more violent, as evidenced by a nearly 10 percent jump for TWM in the first half of August compared to just less than 5 percent for the SPXU.
Expenses: 0.95 percent
ProShares UltraShort Bloomberg Crude Oil (SCO)
ProShares doesn’t just do inverse stock funds — it tackles commodities, too. ProShares’ SCO provides minus two times the daily returns of the Bloomberg WTI Crude Oil Subindex — an index that tracks West Texas Intermediate prices, which is the same type of oil tracked by the popular United States Oil Fund (USO). This fund was a massive winner in 2014 and 2015 as oil plunged from nearly $110 per barrel to below $30, and has enjoyed a few quick spikes in 2017 as oil has stalled out yet again. If you’re bearish on oil, SCO is a popular way to bet on your pessimism.
Expenses: 0.95 percent
iShares 20+ Year Treasury Bond (TLT)
Where do investors run for cover when stocks start to collapse? Well, for one, they often dive into the relative safety of Treasurys, which are backed by the full faith and credit of the U.S. government. It’s not a perfect relationship, of course — bonds don’t always go up when stocks go down, and vice versa — but history is full of periods when bull runs for debt accompany lulls in the market. The TLT — a basket of 33 different long-dated U.S. Treasurys — is an investment-worthy ETF in most markets thanks to its security and decent yield, but it looks especially attractive in risk-off markets.
Expenses: 0.15 percent
iShares Gold Trust (IAU)
Another “flight-to-safety” asset is gold. Gold fanatics tend to go overboard on this investment thesis, betting on almost apocalyptic scenarios over the long haul. While that’s a little farfetched, gold does tend to perform well during times of market and economic uncertainty. The iShares Gold Trust is an ETF that’s actually backed by physical gold, held in vaults, with each unit representing 1/100th of an ounce of gold, and it charges 15 basis points less in expenses than the institutional-investor-friendly SPDR Gold Shares (GLD). In addition to a market hedge, IAU also can get a lift from a weak greenback, as gold is denominated in U.S. dollars.
Expenses: 0.25 percent
iPath S&P 500 VIX Short-Term Futures ETN (VXX)
The VXX is one of several exchange-traded products that allows investors to play market volatility, in this case via CBOE Volatility Index (aka VIX, aka “the fear index”) futures. The VIX itself is a 30-day forward-looking measure of market volatility using options’ implied volatility. And although volatility can increase while stocks are headed higher, market downturns tend to send volatility (and thus the VIX, and its futures) soaring. Just note that this is not a buy-and-hold fund; the VXX has lost 93 percent of its value since inception in 2013, and even required a 1-for-4 split in 2016 because unit prices dropped below a preset $25 per unit threshold.
Expenses: 0.89 percent
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7 Ways to Profit From a Market Collapse originally appeared on usnews.com
