Home News 3 Inverse REIT ETFs for Q4 2022

3 Inverse REIT ETFs for Q4 2022

by SuperiorInvest

Inverse real estate investment trust (REIT) exchange traded funds (ETFs) The objective is to provide investors with short exposure to a basket of securities in the real estate sector. REITs are companies that own, operate or finance income-generating properties and offer investors a way to invest in the real estate sector without having to buy or manage the property themselves.

Investors who are bullish in the real estate sector can use a REIT ETF to invest in a basket of REITs. But investors sa bears outlook have the option of putting their money into inverse REIT ETFs.

Key things

  • Inverse real estate investment trust (REIT) exchange-traded funds (ETFs) have significantly outperformed the market in the past year, although sophisticated investors use these ETFs primarily as short-term vehicles.
  • The ETFs with the best annual total returns are SRS, DRV and REK, but the best measure of their performance is their daily returns.
  • These ETFs provide short exposure to securities tracked by either the Dow Jones US Real Estate Index or Real Estate Select a sector index. All three ETFs use various swaps to provide bearish exposure to the industry.

Traditional ETFs gain when their underlying index rises in price. However, inverse ETF profit when the underlying index falls. They employ financial derivativessuch as an index swapsprovide short exposure for investors looking to profit during a downturn in the sector or a steeper downdraft such as bear market.

Inverse ETFs can be riskier investments than non-inverse ETFs because they are designed only to achieve the inverse of the one-day returns of their benchmark. You shouldn’t expect them to do so for longer term returns. For example, an inverse ETF may return 1% on a day when its benchmark falls -1%, but you shouldn’t expect it to return 10% in a year when its benchmark falls -10%. For more information, see this US Securities and Exchange Commission (SEC) Notice..

Some inverse REIT ETFs use influence, amplifying short exposure to the underlying index. The inverse REIT ETF, which offers -2x leverage, rises 2% when the underlying index falls 1%. But the losses are also amplified, meaning that when the index goes up 1%, the inverse REIT ETF offering -2x leverage goes down 2%.

Leveraged ETFs they can be riskier investments than non-leveraged ETFs because they react to the daily movements of the underlying securities they represent, and losses can be amplified during adverse price movements. Additionally, leveraged ETFs are designed to achieve their multiplier on overnight returns, but you shouldn’t expect them to do so on longer-term returns. For example, a 2× ETF might return 2% on a day when its benchmark rises 1%, but you shouldn’t expect it to return 20% in a year when its benchmark rises 10%. More details can be found here SEC Notice.

There are three distinct inverse REIT ETFs traded in the US. There is none benchmark for these ETFs as each targets investment results on a daily basis. But to compare how the overall real estate market and the broader stock market have fared, the S&P 500 Real Estate Sector Index has delivered a total return of -12.8% over the past year, while the S&P 500 has delivered a total return of -12.2%, as of 2 .September 2022. The best performing inverse REIT ETF based on past year performance is the ProShares UltraShort Real Estate ETF (SRS).

We examine three inverse REIT ETFs below. All numbers below are as of September 6, 2022. In order to focus on the Funds’ investment strategy, the best holdings listed for each ETF exclude cash holdings and holdings purchased with the proceeds of securities lending, except in unusual cases such as an exceptionally large portion of cash.

ETF with very low assets under management (AUM)less than $50 million, they usually have lower liquidity than larger ETFs. This may result in higher trading costs, which may negate some of your investment gains or increase your losses.

  • Performance in one year: 17.7%
  • Expense ratio: 0.95%
  • Annual Dividend Yield: N/A
  • Three-month average daily volume: 205,773
  • Assets under management: $56.7 million
  • Start date: January 30, 2007
  • Issuer: ProShares

SRS offers a short exposure to the Dow Jones US Real Estate Index twice a day. The ETF uses various real estate index swaps to provide bearish investors with a return that is -2x its index. If the index falls 1% on the day, SRS is expected to return 2% on the day, net of fees and expenses. The pool resets daily, resulting in folding returns over multiple periods. SRS is designed for sophisticated investors who want Hedge their real estate exposure or for speculating on slumps in the real estate market.

  • Performance in one year: 13.1%
  • Expense ratio: 0.99%
  • Annual Dividend Yield: N/A
  • Three-month average daily volume: 420,672
  • Assets under management: $122.3 million
  • Start date: July 16, 2009
  • Issuer: Rafferty Asset Management

DRV offers 3x daily short exposure to the Real Estate Select Sector Index, which includes real estate management and development companies as well as REITs. The ETF uses various real estate index swaps to provide bearish investors with a daily return that is -3x the daily performance of its index. If the index falls by 1% on a given day, then the DRV is expected to rise by 3% on the same day. The fund resets on a daily basis, resulting in compounding returns over multiple periods. DRV is intended for short-term hedging and speculative purposes, not as part of a buy-and-hold strategy.

  • Performance in one year: 10.8%
  • Expense ratio: 0.95%
  • Annual Dividend Yield: N/A
  • Three-month average daily volume: 115,408
  • Assets under management: $42.1 million
  • Start date: March 18, 2010
  • Issuer: ProShares

REK offers daily short exposure to the Dow Jones US Real Estate Index, which has range components market capitalization. The ETF uses various real estate index swaps to provide bearish investors with a daily return that is -1x its index. If the index falls by 1% on a given day, then the REK is expected to rise by 1%. The fund is renewed daily, resulting in compounding returns if held over multiple periods. REK is designed for high-level investors tolerance for risk and volatility and is not intended to be held as a long-term investment.

The comments, opinions and analysis expressed herein are for informational purposes only and should not be construed as individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information contained herein to be reliable, we do not guarantee its accuracy or completeness. The opinions and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions and analysis contained in our content are provided as of the date of publication and are subject to change without notice. The material is not intended to be a complete analysis of all material facts relating to any country, region, market, industry, investment or strategy.

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