Exchange-traded funds (ETFs) are often promoted as an efficient way for investors to establish broad exposure to an entire portfolio of securities with a single transaction. Under ideal market conditions, when investors might adopt a generally bullish stance, this can be a great approach. However, what about periods in which investors are more bearish toward the broader market?
In this case, inverse ETFs may be the optimal solution. These funds provide inverse exposure to a target index, meaning that if the index rises they fall and vice versa. This strategy more or less shorts all of the stocks comprising that index while still offering risk protection, as with traditional ETFs, by diversifying exposure across a larger portfolio.
