Bear Market ETFs can be treated as the investment vehicles that hold the power to bet against the performance of the stock market. These are basically Exchange Traded Funds, which invest in a diversified portfolio, made of international shares, fixed income securities and other securities from different asset classes.
Bear Market ETFs generally perform well. As the stocks experience huge fall during bear market situation, the ETFs gain considerably. But, before going in to detailed analysis of Bear Market ETFS, we need to discuss the concept of ETF.
Concept of ETF
ETF is basically Exchange Traded Fund, which cab traded like stocks or bonds. This open-ended fund is traded on stock exchanges. The Exchange Traded Funds or ETFs invest in diversified portfolio.
In the portfolio of ETFs, asset allocation is done in a diversified manner and in most of the cases, the portfolios hold fixed income securities and international shares. This mix of asset classes is the basic characteristic of the ETF Portfolio. So, at any point of time, the value of Exchange Traded Fund depend s on the value of assets held by the ETF Portfolio.
Benefits of ETF
In case of ETFs, the new units are issued or existing units are canceled according to the move of the investors. For this reason, the ETFs become successful in maintaining on-market prices. The ETFs involve transaction costs, which are much lower than the transaction costs of traditional open-ended funds. But, at the same time, ETFs render the benefit of global exposure as these invest in overseas securities.
Bear Market ETFs
At the time of bear market, the persons who have invested in ETFs remain in better position. They are not that much affected by the declining performance of the stock market, as the Bear Market ETFs hold the power to bet against the behavior of the stock market.
Generally the Bear Market ETFs perform very well. Here we can cite names of some Bear Market ETFs, which performed really well till November 2007. Some of the Bear Market ETFs, which gave good returns, are UltraShort Real Estates (ProShares) and UltraShort Financials (ProShares).