Portfolio Hedging

  • Part 1: Importance of Hedging
  • Part 2: Approaches to Hedging
  • Part 3: Hedging with Inverse ETFs
Part 1: The Significance of Portfolio Hedging

A hedge is an investment intended to move in the opposite direction of an asset that’s considered to be at risk in a portfolio. A hedge provides inverse exposure—so if the at-risk investment should decline in value, the hedge is designed to increase in value and offset potential losses in a portfolio.

Hedging a portfolio can be a part of a long-term portfolio, or a short-term shelter from adverse market events, providing investors with an alternative to selling in a down market.

While there are a variety of hedging strategies, Part 1 of our series introduces inverse ETFs and how they can be used to provide inverse exposure...

Part 2: Strategies for Hedging Your Portfolio

In Part 2 of our series, ProShares reviews the pros and cons of different portfolio hedging strategies that can be used in inevitable market downturns:

  • Short selling
  • Buying put options
  • Selling futures contracts
  • Using inverse ETFs

The most direct hedge you could implement would be to buy an investment that offsets 100% of losses in an investment during a specific time period. In reality, few, if any, investments have such ability. There are, however, several common hedging strategies investors use to help mitigate portfolio risk: short selling, buying put options, selling futures contracts and using inverse ETFs.

A Closer Look at Inverse ETFs and Rebalancing

Part 2 will also take a more in-depth look at inverse ETFs—looking closely at their one-day objectives and the ins and outs of how they rebalance if held more than a single day...

Part 3: The Efficacy of Hedging with Inverse ETFs

ProShares inverse ETFs are frequently used to hedge equity and bond holdings. And, as investors have diversified into a broader selection of asset classes, it has become common to see investors hedging commodity and currency holdings as well. Part 3 provides case studies using ProShares ETFs to demonstrate how to hedge these types of assets. In all instances, a rebalancing strategy based on a 10% trigger was used...

Inverse ETFs

Index/Benchmark Daily Objective
UltraPro Short UltraShort Short
-3x -2x -1x
Broad Market
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S&P 500 SPXU SDS SH
NASDAQ-100 SQQQ QID PSQ
Dow Jones Industrial Average SDOW DXD DOG
S&P MidCap 400 SMDD MZZ MYY
S&P SmallCap 600 -- SDD SBB
Russell 2000 SRTY TWM RWM
Sector
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Dow Jones U.S. Basic Materials -- SMN SBM
NASDAQ Biotechnology -- BIS --
S&P Communication Services Select Sector -- YCOM --
Dow Jones U.S. Consumer Goods -- SZK --
Dow Jones U.S. Consumer Services -- SCC --
Dow Jones U.S. Financials -- SKF SEF
Dow Jones U.S. Health Care -- RXD --
Dow Jones U.S. Industrials -- SIJ --
Dow Jones U.S. Oil & Gas -- DUG DDG
Dow Jones U.S. Real Estate -- SRS REK
Solactive-ProShares Bricks and Mortar Retail Store -- -- EMTY
Dow Jones U.S. Semiconductors -- SSG --
Dow Jones U.S. Technology -- REW --
Dow Jones U.S. Select Telecommunications -- -- --
Dow Jones U.S. Utilities -- SDP --
International
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MSCI EAFE -- EFU EFZ
MSCI Emerging Markets -- EEV EUM
FTSE Developed Europe All Cap -- EPV --
MSCI Brazil 25/50 Capped -- BZQ --
FTSE China 50 -- FXP YXI
MSCI Japan -- EWV --
Fixed Income
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ICE U.S. Treasury 20+ Year Bond TTT TBT TBF
ICE U.S. Treasury 7-10 Year Bond -- PST TBX
Markit iBoxx $ Liquid High Yield -- -- SJB
Commodity
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Bloomberg WTI Crude Oil Subindex -- SCO --
Bloomberg Natural Gas Subindex -- KOLD --
Bloomberg Gold Subindex -- GLL --
Bloomberg Silver Subindex -- ZSL --
Currency
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EUR/USD 4:00 p.m. ET exchange rate -- EUO EUFX
AUD/USD 4:00 p.m. ET exchange rate -- CROC --
JPY/USD 4:00 p.m. ET exchange rate -- YCS --

This report is intended for general information and should not be used to solicit prospective investors. For more complete information please review the prospectus.

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