Best Inverse Exposure ETFs to Short the S&P 500 Index

There is an exchange traded fund (ETF) for everything.

If there’s something you want to track, some big brain has developed a basket of securities that will track it fairly closely.

We all know about index funds – they track various stock indices. Those are simple because the fund can buy the same shares that are in the published index. Your decision of which one comes down to tracking error, or how quickly they are able to adjust to changes.

But what if you want the opposite? What if you want to short an index?

Well, they have those too – they’re called inverse exposure ETFs and there are several that short the S&P 500.

Table of Contents

1. How Do Inverse Exposure ETFs Work?
2. The Best Inverse Exposure ETFs
   1. ProShares ETFs
   2. Direxion ETFs
3. How Do You Buy Short ETFs?
4. Do You Need Inverse ETFs?

How Do Inverse Exposure ETFs Work?

They are designed to hold assets that have a negative correlation (-1) and negative beta (-1) on a day to day basis compared to the S&P 500.

You may be familiar with the concept of correlation which can be thought of as how two things change in value. A correlation of -1 means that if one asset goes up by $1 then the other is expected to go down by $1.

Beta is a measure of volatility compared to the overall market. The stock market has a volatility of 1 so a stock with beta greater than 1 will move more than the market. A beta of less than 1 means it’ll move less. -1 means it is expected to move in the exact opposite direction of the market, but to the same degree.

The important idea to remember about inverse exposure ETFs is that they are only designed to work on a day to day basis. They aren’t not designed to be held for long periods of time! (heck, not for more than a day because the small differences in performance are compounded over time)

How do they accomplish this? They invest in a variety of swap agreements and futures contracts with other large financial institutions to essentially short the market for the day.

The Best Inverse Exposure ETFs

These inverse exposure ETFs are popular but not a lot of companies offer it. The two companies that I know of that offer this are ProShares and Direxion, and Direxion doesn’t even have a 2x short!

Information below is accurate as of 3/15/2022.

ProShares ETFs

The biggest name in town is ProShares and their set of inverse exposure ETFs:

ProShares Short S&P500 (SH)

The ProShares Short S&P500 (SH) is the biggest inverse exposure ETF for the S&P 500 with $3.5 billion in assets under management (not counting the value of swaps and other agreements) and an expense ratio of 0.88%.

What’s fascinating about the short ETF is that it’s top ten holdings are similar to what you’d see in the top ten holdings of an S&P 500 index fund:

1. Apple
2. Microsoft Corp.
3. Alphabet Inc. (Google)
4. Amazon.com Inc.
5. Tesla Inc.
6. Meta Platforms, Inc. (Facebook)
7. Nvidia Corp.
8. Berkshire Hathaway Inc.
9. UnitedHealth Group Inc.
10. J.P. Morgan Chase & Co.

ProShares UltraShort S&P500 (SDS)

The ProShares UltraShort S&P500 (SDS) which seeks to give a return of -2x the S&P 500 for a single day. It does it using similar tools as the Short S&P500 fund (swaps and other derivatives) but aims to do it twice as well and it has nearly $1.3 billion in assets (not counting the swaps) and an expense ratio of 0.90%.

ProShares UltraPro Short S&P500 (SPXU)

Finally, we have the ProShares UltraPro Short S&P500 (SPXU) and this guy is trying to -3x the daily return of the S&P 500. If you have strong reservations about how the day will go… this is the one! It has $1.04 billion in assets (not counting swaps) and an expense ratio of 0.90%.

Direxion ETFs

Direxion is another firm that has created quite a few leveraged (where the return is a multiple of the index) and inverse ETFs, including ones for the S&P 500.

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

The Direxion Daily S&P 500 Bear 1X Shares (SPDN) is their version of a fund that seeks to provide a daily 100% of the inverse of the S&P 500. As of January 31, 2021 (the most recent release I could find), it had net assets of $141 million – which seems a little low? – and an expense ratio of 0.55%.

Direxion does not offer a Bear 2X for the S&P 500, only a Bull version.

Direxion Daily S&P 500 Bear 3X Shares (SPXS)

In the aptly named Direxion Daily S&P 500 Bear 3X Shares (SPXS), you get a fund that aims to give you 300% of the inverse of the S&P 500’s performance that day. As of January 31, 20121, the fund had net assets of $526 million and an expense ratio of 1.01%.

How Do You Buy Short ETFs?

It’s an ETF so you can buy them with any brokerage account as you would a stock.

M1 Finance is a good option because they have no commissions on trades which means you can enter and exist these short positions without paying M1 Finance a commission. Also, M1 Finance will give you a welcome bonus when you sign up for an account and make a deposit within 14 days (up to $500). Our M1 Finance review can give you more information about the account itself.

Personally, I’d do it in my Ally Invest because that’s my main brokerage account (beyond my Vanguard account) and they also have no minimums, no commission trading, and all that good stuff.

Do You Need Inverse ETFs?

I don’t think so.

I’ve never invested in an inverse exposure ETFs. They’re designed for a single day and I suppose there are situations where you might want to invest in one but it feels bit like market timing.

The most obvious use case is if the market is having a down day and you think it’s going to get worse, you might buy shares of a short ETFs as a hedge. If the market goes that further, you offset it with the gains in the short ETF. If they go up, well you lose money in short ETF but your portfolio, which is much larger, benefits more.

It’s like buying a little insurance in case the market falls today.

They’re not meant to be held for more than a day but nothing bad suddenly happens if you do. You’ll eventually get returns that don’t match the intended goal.

If you look at the fund performance for the ProShares Short S&P 500, you’ll see it’s not exactly -1x the S&P 500:

Since these companies are trying to replicate a -1x, and no exact short exists (unlike with a single stock, you can simply short it), it’s hard to get it right perfectly. It’s also hard to get it right for every trading day of the year!

So the short answer is you don’t need these funds but it’s still important to know about them… just in case.