Inverse ETF (or inverse bond ETF) is a fixed income fund thats share price moves in the opposite direction of the tracked index. Those who are looking for a short position relative to fixed income securities have about 11 ETF options in the inverse bond category. The inverse bond ETF market include issuers like Barclays, iPath, Direxion and ProShares. They have an expense ratio ranging from 0.65% to 0.95%.
Inverse ETFs either acquire the actual securities or an ETN (exchange traded note) backed by the financial strength of the issuer. Leveraged inverse ETFs are commonly traded in the ETF market and change in value two to three times daily with the return of index. They could be hugely profitable as short term trading vehicles, but they obviously carry many more risks as well.
Direxion recently launched its first inverse bond ETFs including Direxion Daily Total Bond Market Bear 1x Shares (SAGG), Direxion Daily 7-10 Year Treasury Bear 1x Shares (TYNS), and Direxion Daily 20+ Year Treasury Bear 1x Shares (TYBS). SAAG, with an expense ratio of 0.65%, is seeking to capture the Barclays Capital US Aggregate Bond Index which is a benchmark in measuring the investment grade and fixed rate taxable bond market. It is tied to the iShares Barclays Aggregate Bond ETF (AGG).
TYNS is seeking the NYSE 7-10 Year Treasury Bond Index and is also tied to the iShares Barclays 7-10 Year Treasury Bond ETF (IEF). Whereas, TYBS is seeking the NYSE 20 Year Plus Treasury Bond Index and tied to inverse performance of iShares Barclays 20+ Year Treasury Bond ETF (TLT). Both TYNS and TYBS have the same expense ratios of SAGG.
Some other possibilites for investors include the long term and short term options in the inverse ETF category. ProShares have a prominent share in this regard. They were the first to offer leveraged and inverse ETFs having more than 100 such types in their portfolio. ProShare Short 20+ Year Treasury (TBF) and ProShare Short 7-10 Year Treasury (TBX) corresponds to the Barclays Treasury Index. Effective duration of TBF is over 15 years and that of TBX is seven year with a thirty day security yield of 3.1%.
The high yields in inverse ETF have been able to attract many investors towards them. iPath ETFs sponsored by Barclays Bank have a family of debt tracking ETNs. These allow the traders and investors to make difficult bets about the securities yield curve. iPath offers three inverse ETNs including iPath US Treasury 2 Year Bear ETN (DTUS), iPath US Treasury 10 Year Bear ETN (DTYS) and iPath US Long Bond Bear ETN (DLBS).
