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9 ETFs That Go Up When the Market Goes Down

Is it time for a market correction?

The Standard & Poor's 500 index continues its bullish ways, flirting with the 2,600 mark after a recent surge thanks to corporate earnings. So far, the index is up more than 15 percent this year. But while many have profited from the bull market, there are plenty of others who are waiting for the other shoe to drop. After all, markets can't go up forever, and even a modest correction may be overdue. If you're worried about the stock market and want to protect yourself, or if you're an aggressive trader looking to bet against stocks in 2017, an inverse fund may be your best bet.

What is an inverse fund?

An inverse fund is a sister of index funds that are tied to a fixed list of investments. The big difference is that inverse funds are designed to deliver the opposite return of their benchmark on a daily basis -- these funds go up when their targeted assets go down. There are two major providers of inverse funds, Direxion and ProShares, in part because these are fairly sophisticated instruments that smaller shops can't create as easily. Also, in a bull market that has seen consistent new highs for the stock market -- and consistent declines for inverse ETFs as a result -- there just hasn't been a lot of interest or competition in this corner of the market.

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Some words of caution.

Inverse funds can play an important part in your portfolio. They are a great way to make a tactical bet to unlock new profit opportunities if you expect even a short-term decline, or simply to get a bit of insurance just in case the market does roll over. The obvious hang-up, of course, is that funds deliver the opposite return of their benchmark. So if the market continues to rise across the board, these funds not only lose you money but will be a constant reminder of the rally you're missing out on. So make sure you do your research before diving in to any of these funds.

Direxion S&P 500 Bear ETF (ticker: SPDN)

The S&P 500 is the most common benchmark of the U.S. stock market for most investors. As a result, index funds benchmarked to the S&P are the go-to way that many Americans invest if they want to play the long-term gains offered by equities. The SPDN tries to generate returns that are the opposite of the S&P 500 on a daily basis. Over time, the nature of compounded returns may cause a variance in this correlation. But in the short term, this fund should go up precisely as much as the S&P 500 goes down -- and vice versa.

Expense ratio: 0.62 percent ($62 per $10,000 invested annually)

ProShares Short Dow30 (DOG)

Another option for investors who want funds that go up when the market goes down is the DOG ETF, which is negatively correlated to the Dow Jones industrial average. The 30 Dow components offer a more focused list than the broader S&P 500 and may be better suited to your investing goals. This fund isn't just a way to profit when the market declines, of course. Even bullish investors may want to consider some exposure to an ETF like this as a way to protect themselves from possible volatility. Consider a short ETF as a form of insurance, not just a possible short-term investment.

Expense ratio: 0.95 percent

Pro Shares Short QQQ ETF (PSQ)

Not all investors are content to focus on the S&P 500 or Dow. The Nasdaq 100 has gotten a lot of attention because it is biased toward big tech stocks such as Apple (AAPL), Facebook (FB) and Amazon.com (AMZN). That shift can result in much different returns. The Nasdaq 100 is up 28 percent this year versus 15 percent for the S&P 500 and 18 percent for the Dow. If you think these bigger gains during good times could result in bigger losses if the market rolls over, then consider the PSQ, which moves opposite to the Nasdaq 100 index instead of the broader S&P 500 benchmark.

Expense ratio: 0.95 percent

Direxion Daily 20+ Year Treasury Bear ETF (TYBS)

What if you prefer to bet against bonds instead of stocks? There's an ETF for that too -- the TYBS. This fund, like the others, seeks to generate the opposite returns on a daily basis. But instead of being correlated to an index of stocks, this fund is tied to the value of long-term U.S. Treasury bonds that are 20 years or longer in duration. This is a particularly interesting fund as we enter 2018 with the prospect of higher interest rates. After all, if rates go up, the principle value of bonds tends to go down. If that occurs, this fund could prosper.

Expense ratio: 0.50 percent

ProShares Short MSCI Emerging Markets ETF (EUM)

What if you're more worried about international markets than American stocks? Then consider the EUM, which is tied to the MSCI Emerging Markets index. To be clear, this isn't a global fund that holds positions in developed nations like Canada or Germany. It is a pure play on emerging markets like China and India. In boom times, these fast-growing regions can dwarf the returns of domestic stocks. But if you expect trouble in these riskier regions or a global economic environment that favors bigger nations over the up-and-comers, you may want to consider this short ETF.

Expense ratio: 0.95 percent

Direxion Daily CSI 300 China A Share Bear 1X Shares (CHAD)

Getting even more tactical, the CHAD is a pure play on China stocks alone. Its strategy is tied to the SCI 300 index, a benchmark formed by 300 companies listed on the Shanghai and Shenzhen stock exchanges. So-called "China A Shares" are a distinct class of emerging market stocks because they are traded in mainland China and are subject to governmental controls on outside investment. Unlike China-focused companies listed in Taiwan or on other exchanges, this is a pure play on China's domestic stock market. Or rather, it's a pure play against China's stock market since it goes up as the CSI 300 goes down.

Expense ratio: 0.84 percent

ProShares Short Financials ETF (SEF)

What if your biggest worry -- or perhaps your biggest potential investment opportunity -- isn't based on geography, but instead on a specific sector? After all, it wasn't just one region that was affected by the 2008 global financial crisis; one can argue that the pain was shared all around the world. Well, if your target is the financial industry, then consider the SEF ETF. This fund is specifically targeted against financial companies only, including big names in the Dow Jones U.S. Financials index -- including, among others, Bank of America Corp. (BAC), Goldman Sachs Group (GS) and Morgan Stanley (MS).

Expense ratio: 0.95 percent

ProShares Short Oil & Gas ETF (DDG)

Another sector that some investors have been bearish on in recent years is energy, after oil and gas prices have remained under pressure for some time. Why not consider playing the downside of this industry, then, with a fund like the DDG? This fund is designed to deliver the opposite returns of the Dow Jones U.S. Oil & Gas index, which contains some of the biggest energy names on Wall Street, including Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX). If you're looking to bet against Big Oil, then this ETF is the way to go.

Expense ratio: 0.95 percent

DB Gold Short ETN (DGZ)

If your pessimism is focused on gold rather than stocks, then there's the DGZ. This is actually not technically an exchange-traded fund, since it doesn't hold hard investments like stocks, but actually an exchange-traded note that is more like bonds or a debt investment. That's because it operates by trading in gold futures contracts and not in actual gold. But the end result is the same as previous examples. After modest fees, the fund is designed to go up 5 percent if gold goes down 5 percent in a given day. But also as with the other investments, if gold goes up, expect DGZ to go down.

Expense ratio: 0.75 percent



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