After reaching a multi-year low in early April amid the tariff-related market selloff, the Technology Select Sector SPDR Fund (NYSEARCA: XLK) has recovered some ground as of mid-May. However, the tech sector as represented by this benchmark fund is still experiencing a lackluster start to the year; XLK is down more than 6% year-to-date (YTD). This represents a sharp reversal from more than two years of fairly steady gains.
There are plenty of reasons for investors to be bearish on tech names. First, the threat of tariffs still looms, with many firms particularly dependent upon materials and components from China to keep up the pace of technological development and to maintain affordability for customers. Further, though, sticky inflation—and the prospect of tariff-related inflation increases—means that consumers are likely to continue to tighten belts, forgoing luxury purchases that often include expensive tech products.
Investors may be pessimistic about individual tech names, but those more broadly skeptical of the sector may consider an investment in a specialized exchange-traded fund (ETF) that acts as a bet against the space. Below, we look at three inverse ETFs designed to provide positive returns when tech stocks decline.
Powerful Double Inverse Exposure to Semiconductor Stocks
[content-module:CompanyOverview|NYSEARCA:SSG]Semiconductor stocks are not representative of the breadth of the tech space, but they do connect with a huge portion of it thanks to the many companies relying on their products. The ProShares UltraShort Semiconductors ETF (NYSEARCA: SSG) takes an aggressive bearish view of semiconductor names, applying 2x daily inverse leverage to an index comprised of more than 30 stocks.
The target benchmark for SSG, the Dow Jones U.S. Semiconductors Index, includes a range of companies based in the United States that manufacture semiconductors and related equipment. This means the firms may be uniquely exposed to the impact of tariffs and a trade war with China.
With double inverse leverage, SSG is a powerful tool for investors expecting semiconductor stocks to decline. However, its leverage resets daily, meaning that it is designed for short-term investors and not those utilizing a longer-term strategy. Holding shares of SSG beyond a single day may compound results, leading to significant discrepancies from the performance of the underlying index. Along with the hefty inverse exposure comes a fairly high fee of 0.95%, but investors targeting this space may be likely to find that expense worth it for a uniquely bearish semiconductor ETF.
-3X FANG+ Exposure With Strong Liquidity
[content-module:CompanyOverview|NYSEARCA:FNGD]If -2x exposure to semiconductors is not sufficient, extremely bearish investors might turn to the MicroSectors FANG+ Index -3X Inverse Leveraged ETN (NYSEARCA: FNGD) instead. FNGD provides -3x exposure to the NYSE FANG+ Index, a highly concentrated index of just 10 of the largest companies in the tech space. The index includes the FANG stocks as well as CrowdStrike Holdings Inc. (NASDAQ: CRWD), ServiceNow Inc. (NYSE: NOW), and a handful of other major players.
FNGD, like SSG above, is designed to reset leverage daily, so it's effectively employed by investors trading within a single day. This factor, combined with the specificity of the underlying index, means that FNGD may be most appropriate for investors anticipating a single-day drop in stock prices for some of the constituents—a political announcement or earnings report that may send shares downward, for example.
FNGD's expense ratio is also 0.95%, but it has a key advantage over SSG in that it has a substantially larger trading volume and asset base, making it easier for investors to enter and exit positions in this fund quickly.
NASDAQ-100 Index Inverse Exposure
[content-module:CompanyOverview|NYSEARCA:QID]The ProShares UltraShort QQQ ETF (NYSEARCA: QID), which targets the NASDAQ-100 Index, is the broadest fund on our list. The NASDAQ-100 is not solely focused on tech stocks, although they typically do represent the majority of the index.
QID is a -2x leveraged fund that also resets on a daily basis, making it well-suited to short-term traders.
QID has the strongest trading volume of any of the three funds here and also shares a 0.95% expense ratio, like SSG and FNGD above.
Its broader focus including non-tech names may make it appropriate for cases in which the wider market is likely to decline as well as those in which the tech sector in particular is trending downward.
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