Inverse ETFs cash in as central banks hike rates

Yasmine Raso

Senior Journalist, Financial Newswire

8 September 2022

Central banks around the world tightened their grip on mortgage holders and borrowers this week after further interest rate hikes were announced, plunging sharemarkets and sending inverse exchange traded funds (ETFs) to the top.

ETF Securities’ Weekly ETF Monitor for the week ending 2 September 2022 revealed four of the five top performing funds were inverse ETFs that “use short selling to bet against the markets and profit when they fall”.

These funds included ETF Securities’ Ultra Short Nasdaq 100 Hedge Fund (SNAS), BetaShares’ US Equities Strong Bear HF – Hedged (BBUS), BetaShares’ Australian Equities Strong Bear (BBOZ) and BetaShares’ Australian Equities Bear (BEAR).

Evan Metcalf, Head of Product Management and Development at ETF Securities, said while the most heavily traded ETFs “were the usual suspects”, SNAS did crack the top 10 to prove its increased use as a “hedging tool”.

“The worst performers were geared equity funds – which use borrowed money to make bullish bets on the stock market (and represent the opposite side of the wager [of inverse ETFs]),” the monitor said.

“Resources sector ETFs also took a beating thanks to fears of Chinese lockdowns hitting the iron ore price.”

The monitor also showed investor behaviour bucked the trends in the last week. There was $240 million in reported inflows and $106 million in reported outflows, with the biggest winner the actively managed Nanuk New World Fund Managed Fund (NNUK) at $32 million.

“Interestingly, a resource ETF – the SPDR S&P/ASX 200 Resources Fund (OZR) – saw strong inflows despite ranking among the worst performing funds for the week—suggesting dip buying,” the monitor said.