Inverted ETFs find traction ‘shows you how bearish investors are right now,’ expert says

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Cinthia Murphy, Director of ETF Research Think Tank, joins Yahoo Finance Live to discuss what’s moving the ETF market and the state of leveraged and inverse ETFs.

Video transcript

With the S&P in bearish territory, very bearish bets dominate the ETF market. Now a trend similar to what we saw during the financial crisis. Let’s talk about what that means here. And we have Cinthia Murphy, Director of ETF Think Tank Research. Cinthia, that’s great to see. This is part of our ETF report presented by Invesco QQQ.

So Cynthia, we see trading funds and inverse ETFs that are going to do well when the market is down. It has now eclipsed bullish leveraged product activity by the widest margin we’ve seen since 2008? What signal does this send? I guess, how worried should we be about where the market is headed?

CINTHIA MURPHY: Seana, that’s a great question because anytime you see a lot of action in anything leveraged or inverse, you have to be extra careful. I mean, these products are not for your type of long-term investor. They are really for your type of day trader or your very short term trading tactical allocation type because with leverage and with inverse ETFs as you know the way back is not what you would expect with a long term buy and hold. It is a daily cumulative effect.

So the gains go up quickly. But so are the losses. So this year what you see is the market is down. We are in bearish territory. People talk about recession. And one way to play that, which we’re seeing more and more people doing, is to use inverse ETFs.

So instead of going out and trying to short different stocks you’re bearish on, you can just buy an inverse ETF and the ETF will do all that work for you. So you don’t have to worry about derivatives markets. These are complicated positions to take. You just bought the ETF and that position is there. And today in the ETF market, you have inverse ETFs for just about everything. There’s -1x, 2x, 3x of the S&P 500, QQQ. You name it, there’s a reverse game there. And we see these funds finding traction, because that shows you how bearish investors are right now.

So Cinthia, for people who are new to investing or maybe retail investors who see these low prices on some of these stock markets but don’t really know how to approach it, if they want to get into ETFs , what kind of mindset should they have gotten into it now?

CINTHIA MURPHY: Yeah. ETFs are phenomenal tools because you can build entire portfolios out of anything like your classic 60-40 long-term allocation, things that are very traditional, dig and explore, as they say. So just your vanilla core US large cap stocks in the middle, good quality treasury fixed income, and then the satellite positions which may be hot themes or momentum trades or things that interest you that are likely more tactical and shorter term. We can do anything like that. And today, through just about any brokerage account, you can access almost 3,000 ETFs in the market and create portfolios at will.

There are also many different providers that offer model portfolios that you can access for free. And you just put in your money and replicate those designs without having to do a lot of work yourself. Investing in ETFs has therefore really evolved. And today’s tools are endless. If you’re thinking of a theme, if you’re thinking of a pocket of the market, there’s probably an ETF there. And you can easily buy this ticker and just add it to your mix.

It has certainly evolved, to the point that ProShares offers the first short Bitcoin ETF. Given the volatility there and the predictions of 13, 14 as a floor, what do you think the appetite will be?

CINTHIA MURPHY: This is interesting because ProShares was also the first provider to launch the first Long Bitcoin ETF, the futures-based BITO, just eight months ago. And we saw what happened to Bitcoin prices. I mean, last month it’s down over 30%. It was a bloodbath. And now comes the reverse. The first day was yesterday. It is therefore a completely new product. Volume – if you compare yesterday’s trade volume to BITO’s first day trade volume, the long version, it does not compare it. Was much more discreet. But it speaks in the air.

So here we are talking, can Bitcoin go down and touch $15,000? Just earlier, you guys, we’re talking about $13,000 Bitcoin. And here’s an ETF that gives you that inverse performance, meaning the lower Bitcoin prices go, the better that ETF will do. So again, it’s ETFs that go exactly to where investors’ mindset is and put the perfect tool at their disposal if that’s in fact how they want to act in the market. .

Cinthia Murphy, always nice to have you. Thank you very much for joining us.

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