Inverse ETF is an exchange-traded fund that is constructed by using various derivatives for the purpose of profiting from a decline in the value of an underlying benchmark or index. Investing in these ETFs is similar to holding various short positions, or using a combination of advanced investment strategies to profit from falling prices. They are also known as a "bear ETF".
One advantage is that these ETFs do not require the investor to hold a margin account as would be the case for investors looking to enter into short positions. There are several inverse ETFs that can be used to profit from declines in broad market indexes such as the Russell 2000 or the Nasdaq 100.
In addition, it is possible to buy inverse ETFs that focus on a specific sector such as financials, energy or consumer staples. Most investors look to purchase inverse ETFs so that they can hedge their portfolios against falling prices.
King of the Birds, Lord of the Skies
Gather ye rose buds while ye may, old time is still a flying;
and this same rose that you see today, tomorrow will be dying.
CarpeDiem: Seize the Day!
- Dead Poets Society
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