3 ETFs to Buy if You Expect a Market Reversal

Last week, the S&P 500 came within 0.5% of a new, all-time high. Despite the stock market’s optimism, many well-respected investors like Warren Buffett remain cautious.

There are several risks like a flareup in coronavirus cases, failure of Congress to reach an agreement on extending the CARES Act, and a…

stock market that is hitting extremes in valuation. Below is the ratio of the Wilshire 5000 to GDP. In a 2001 interview, Buffett remarked, “it is probably the best single measure of where valuations stand at any given moment.”

So, it’s reasonable for investors to be cautious at the moment. One strategy is to load up on stocks that have a long track record of paying and increasing dividends, as they tend to do well during bearish markets and generate a healthy income stream.

More short-term, aggressive traders may even look to bet on a market reversal. One way to do so is by buying inverse ETFs which rise when their corresponding indexes decline. If the market were to reverse, ProShares Short QQQ (PSQ), Direxion Daily S&P 500 Bear 1X Shares (SPDN), and ProShares S&P 500 Dividend Aristocrats ETF (NOBL) are three ETFs that will outperform.

ProShares Short QQQ (PSQ)

PSQ is a passively managed ETF that seeks daily investment results that correspond to the inverse (-1x) of the daily performance of the Nasdaq 100 Index.

The fund’s expense ratio is 0.95% and it has an AUM of $608.5 million. It also has an impressive 1.41% yield.

The index holds 103 companies with an average market capitalization of $125.6 billion. It is heavily exposed to the information technology industry group. The top three holdings of the index are Apple, Inc. (AAPL), Microsoft Corporation (MSFT) and Amazon, Inc. (AMZN), with the weights of 12.1%, 11.8%, and 10.5%, respectively.

PSQ is presently trading at $17.13. The ETF has lost 30.25% year-to-date.

As per the POWR Ratings, PSQ is rated “B” for Peer Grade. It is also ranked #2 out of 48 ETFs in the Inverse Equities ETFs group.

Direxion Daily S&P 500 Bear 1X Shares (SPDN)

SPDN is an inverse equity ETF that seeks to offer the inverse of the daily return of the S&P 500 index. The fund’s objective is to seek a return that is -100% of the return of its benchmark index for a single day. The fund allows investors a tactical trading alternative to selling out of an existing position and creating a taxable event.

The ETF has over $172 million in AUM and an expense ratio of 0.5%. Moreover, it has a good dividend history with a yield of 0.97%.

The underlying index currently consists of 505 constituents with a total market capitalization ranging from $2.9 billion to $1.3 trillion. It is concentrated in the information technology sector with a 27.5% weight, followed by the healthcare sector with 14.6%. The index’s top three holdings are…

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