Inverse ETFs: A Hedging Strategy Amid Rising Volatility

With the growing potential for market volatility in the months ahead, investors may want to consider strategies for hedging their portfolios.

For one thing, while an uptick in market volatility may be expected ahead of a presidential election, the expectation for uncertainty around the results themselves suggests that this time could be different. As the coronavirus pandemic disrupts traditional voting patterns, leading to a surge of mail-in voting, many election officials have voiced the possibility that the winner may not be known for days or even weeks.

More generally, uncertainty surrounding the pandemic continues to weigh on the market in multiple ways. Large sections of the U.S. economy remain frozen in place as state governments debate the appropriateness of when to reopen. In addition, despite repeated calls from the Federal Reserve and others for a new round of fiscal stimulus, the timing of such a deal remains unclear (if it even happens at all). It is against this backdrop that the stock market neared a correction in September. In short, a number of factors have lined up to suggest an especially rocky period for the market during the months ahead.

*Since presidential inauguration, 1/20/2017 – 10/26/2020. Past performance is no guarantee of future results.


Investors have the ability to hedge portfolio exposure through an uncertain market environment with inverse ETFs. With a daily investment objective designed to move in the opposite direction of an underlying benchmark, inverse ETFs can be valuable risk management tools. Investors can hedge not only their exposure to equities, but also to other areas of the market such as fixed income.

For investors using inverse ETFs over time, a rebalancing strategy can be considered. A rebalancing strategy should reflect an investor’s goals in maintaining an effective hedge, be compatible with their desired level of monitoring, and be customizable to adjust for changing market and volatility conditions.


Any forward-looking statements herein are based on expectations of ProShare Advisors LLC at this time. ProShare Advisors LLC undertakes no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Investing is currently subject to additional risks and uncertainties related to COVID-19, including economic, market and business conditions; changes in laws or regulations or other actions made by governmental authorities or regulatory bodies; and world economic and political developments. This information is not meant to be investment advice.

Short ProShares ETFs seek returns that are a multiple of (e.g., -1x or -2x) the return of a benchmark (target) for a single day, as measured from one NAV calculation to the next. Due to the compounding of daily returns, Geared ProShares' returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period. These effects may be more pronounced in funds with larger or inverse multiples and in funds with volatile benchmarks. Investors should monitor their holdings consistent with their strategies, as frequently as daily. For more on risks, please read the prospectus.

There is no guarantee any ProShares ETF will achieve its investment objective.

Investing involves risk, including the possible loss of principal. Short ProShares ETFs are non-diversified and entail certain risks, which may include risk associated with the use of derivatives (swap agreements, futures contracts and similar instruments), imperfect benchmark correlation, leverage and market price variance, all of which can increase volatility and decrease performance. Short ProShares ETFs should lose money when their benchmarks or indexes rise. Please see their summary and full prospectuses for a more complete description of risks.

Carefully consider the investment objectives, risks, charges and expenses of ProShares before investing. This and other information can be found in their summary and full prospectuses. Read them carefully before investing.

ProShares are distributed by SEI Investments Distribution Co., which is not affiliated with the funds' advisor or sponsor.

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