For pessimistic S&P 500 investors, there's much to worry about. With stocks flying higher — especially in the red-hot technology sector — they're betting, using ETFs, that a great fall is coming.
Money is pouring into select "inverse" ETFs — which gain when other stocks drop. These high-octane funds, such as ProShares UltraPro Short QQQ, ProShares Short S&P 500 and Direxion Daily Semiconductor Bear 3x, are attracting dollars from investors who think the ongoing rally is too good to be true.
Some of the inflows into inverse ETFs are head-turning. ProShares UltraPro Short, which gains when the Nasdaq 100 falls, has "pulled in $1.5 billion of new money in the last three months," says Todd Rosenbluth of VettaFi. And ProShares Short S&P 500 "has more than $375 million of net inflows," he said.
And that's just the start.
Big Bets On A Big S&P 500 Fall
Cautious investors worry that giant S&P 500 technology stocks are rising too far, too fast. Tesla alone has doubled just this year, reordering the world's richest people with just one stock.
And that's just a single example. The Invesco QQQ Trust, which owns the 100 most valuable stocks on the Nasdaq, is up 36% this year. Semiconductor stocks, fanned by demand for AI equipment, are up even more. The iShares Semiconductor ETF is up 41% this year. Even the S&P 500 itself is up more than 13%, largely thanks to the seven largest, mostly technology stocks on the index.
And many investors think the rally is extended. Investors this year poured more than $1.6 billion into the Direxion Daily Semiconductor Bear 3X Shares, which rises when semiconductor stocks fall, says ETF.com. That's more than the net $1.2 billion that's flowed into all semiconductor ETFs during that time.
Such bets have been painful so far.
Betting Against S&P 500 Tech Is Hurting
Given the powerful run in tech stocks in the S&P 500 this year, it's no surprise betting on a crash hasn't worked out.
ProShares UltraPro Short QQQ, the largest inverse ETF with assets of $4.8 billion, is down 63% this year. The ETF's largest bet is against the most-valuable stock in the Nasdaq 100: Apple. And shares of the gadget maker are up a blistering 42% just this year.
Apple is also the largest stock ProShares Short S&P 500 is shorting. Shares of Short S&P 500, which has assets of nearly $2 billion, are down 12% this year.
Interestingly, S&P 500 investors look more likely to short tech stocks as a group rather than simply bet against individual stocks. None of the top 10 most shorted S&P 500 stocks are in the information technology sector, says S&P Global Market Intelligence. Less than 1% of Apple's shares outstanding are controlled by shorts. That's below the average 2.4% short interest in all of S&P 500 stocks.
On an individual stock level, investors, instead, are shorting consumer discretionary stocks. Car retailer CarMax is the most shorted S&P 500 stock with more than 14% of shares outstanding being shorted, says data from S&P Global Market Intelligence.
In fact, more than half of the S&P 500's most-shorted stocks are in the consumer discretionary sector. And brave investors can bet against the whole sector with UltraShort Consumer Discretionary ETF.
But trying to pick a crash with inverse ETFs amid a raging bull market is risky, Rosenbluth says.
"Investors need to be careful with inverse ETFs as the market can climb higher for longer than they might expect," he said. "While there is reward potential if there's a pullback, the risk is also elevated."
Largest Inverse ETFs
All are suffering this year as the S&P 500 bull market rages on
| Symbol | ETF Name | Year-to-date % ch. | Inverse amount | Total Assets ($ billions) |
|---|---|---|---|---|
| ProShares UltraPro Short QQQ | -62.8% | 3x | $4.8 | |
| ProShares Short S&P500 | -12.0% | 1x | $2.0 | |
| Direxion Daily Semiconductor Bear 3x Shares | -72.3% | 3x | $1.3 | |
| ProShares UltraPro Short S&P500 | -33.5% | 3x | $1.2 | |
| Direxion Daily S&P 500 Bear 3X Shares | -33.9% | 3x | $1.1 | |
| ProShares Short QQQ | -10.5% | 1x | $1.1 | |
| ProShares UltraShort S&P500 | -50.8% | 2x | $1.0 | |
| ProShares UltraShort QQQ | -47.1% | 2x | $0.5 | |
| ProShares UltraPro Short Dow30 | -8.3% | 3x | $0.5 | |
| Direxion Daily Small Cap Bear 3X Shares | -22.4% | 3x | $0.4 |
Sources: VettaFi, IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
