This inverse exchange-traded fund is a hedge against a possible decline in broader markets.
ProShares Short S&P500 (SH)
From Capitalist Times
We live in a world of uncertainty. Although we expect US equities to suffer a meaningful correction in 2016, we’d probably retire to a private island if we could time the market’s highs and lows flawlessly.
However, establishing or adding to a hedge during periods of elevated market risk and liquidating that position after a significant decline in the broader market can improve your overall returns significantly and reduce your portfolio’s volatility in a bear market.
Selling your hedges for a gain also provides funds to invest in bargain-priced stocks.
Inverse exchange-traded funds (ETF) such as ProShares Short S&P 500 (SH), which gains 1 percent for every 1 percent daily decline in the S&P 500, offer a direct way to hedge downside risk in the broader market.
Note that because ProShares Short S&P 500 provides the inverse of the S&P 500’s return for a single day, the compounding of these daily returns may result in a total return that departs from the gain or loss posted by its benchmark index over the same holding period.
For example, whereas the S&P 500 has returned 3.7% year to date, ProShares Short S&P 500 has lost 5.79% of its value.
Despite these drawbacks, the ETF would still function as effective hedges if the S&P 500 were to suffer a sharp correction in the first half of 2016.
We’ve added ProShares Short S&P 500 to the Wealth Builders Portfolio as a buy up to $24 per share.
Roger Conrad and Elliott Gue, Capitalist Times, www.capitalisttimes.com, 888-960-2759, November 23, 2015