If you're an investor, you've been seeing some scary headlines:
- 'Hindenburg Omen' looms over Wall Street
- Beware: Market valuation looks like 2007 again
- Cramer: 'Giant reset' looming for markets
- Stars aligned for a 'serious' US correction
And those are just from this week. Of course, there are bulls who take the other side (see Wharton professor Jeremy Siegel's assurance from the week before, Keep buying—you 'can't lose,' or the estimation Thursday by Wells Fargo Private Bank CIO John Lynch that the S&P could trade at 1,900 'relatively easily').
But if you think the Dow's 15 percent rise this year (down from 19 percent a couple of weeks ago) is unsustainable and that a pullback is inevitable, or you're sure that Fed tapering is nigh and is going to send investors into hiding, bears can find ways to bet on a bust.
One is the short exchange-traded fund, aka inverse ETF, and one industry source said there's been a noticeable uptick in inflows into such instruments in the past few weeks as more people raise alarms about the market. Alternative ETF provider ProShares said it has seen net inflows of $3.8 billion into inverse products in 2013, although more than half of that was in the first three months.
Just as when you short a stock, with short ETFs you're expecting to make money from the decline of securities' value. And with leveraged short ETFs—2x and 3x funds—it's possible to dramatically escalate returns. As you might expect, the same is true of losses if the market doesn't go your way.