If you are an active trader trying to time the market or even a long-term Canadian ETFs investor who wants to take advantage of short-term price swings, inverse Canadian ETFs in Canada are a strong option for many.
Ever since 2020, when trading activity ramped up due to a significant increase in the popularity of the stock market, more and more inverse ETFs have been hitting the markets. The reasoning is simple. Fund managers want to take advantage of the popularity. Lets look at some of the best inverse ETFs in Canada today.
What is the Best Inverse ETF in Canada?
As you can see, if you're looking to buy an inverse ETF, Horizons is where you want to go, as there are few alternatives here in Canada.
Horizons BetaPro S&P 500 Daily Inverse ETF (HIU.TO)
In terms of inverse ETFs that do not utilize leverage here in Canada, HIU is the most popular. It has assets under management of $67M at the time of writing and aims to track the opposite of the daily performance of the S&P 500.
Because this fund doesn't utilize leverage, it simply tracks the S&P 500 by 1X. If the S&P 500 goes down by 1% in a day, you will gain 1% in a day.
The fund's management expense ratio is 1.41%, meaning you'll pay $14.10 per $1000 invested annually. As we move down this list, you will likely notice that these inverse ETFs have exceptionally high management fees. This is another reason to not hold them long-term.
Horizons BetaPro S&P 500 -2X Daily Bear ETF (TSE:HSD)
HIU tracked the opposite movements of the S&P 500 by 1X. With this 2X daily bear ETF, you will be tracking double the movements. So, this ETF utilizes leverage.
Due to the 2022 bear market, this fund has grown into the largest inverse ETF in Canada by Horizons. It has assets under management of $165M at the time of writing.
To give you an idea of the volatility of an ETF like this, from September 30th, 2022, to December 13th, 2022, the S&P 500 went on a rally where it gained 13%. As a result, HSD lost a total of 24.5%.
This should highlight the overall risk of these leveraged inverse ETFs and how they are primarily for speculation purposes, and significant losses can occur. During this market rally, if you were to have just bought an S&P 500 index fund, you would have had a 40%~ swing in returns.
Alternatively, throughout 2022 due to the bear market, this ETF gained 19% while the S&P 500 lost 15%. The difficulty here, however, is it is highly unlikely for an investor to hold this ETF for an entire year.
The fund has a management expense ratio of 1.55%, meaning you'll pay $15.50 per $1000 invested annually.
Overall, if you're looking for leveraged inverse movements of the S&P 500, this will be the ETF you want to look at.
BetaPro S&P/TSX 60 Daily Inverse ETF (TSE:HIX)
With an index like the TSX 60, comprised chiefly of stable, blue-chip Canadian companies, we can expect lower overall price movements.
But with this ETF, you get inverse exposure to the TSX 60 index nonetheless. This fund is small, likely because speculators tend to head to indexes with higher volatility and volume, like the NASDAQ or S&P 500. With assets under management of only $19M, there is a chance Horizons could discontinue the fund, which is something to consider.
You will pay around $14.20 per $1000 invested annually to hold this fund. During the bear market in 2022, it provided less than stellar returns, only approximately 2.5%. This is because the TSX Index was one of the best-performing indexes in North America.
However, there were still short-term opportunities to make double-digit returns on significant volatility. They were just fewer than that of the S&P 500 and NASDAQ.
BetaPro S&P/TSX 60 -2X Daily Inverse ETF (TSE:HXD)
I will be short and sweet on this ETF. Unlike HIX, which has 1X exposure, HXD is a 2X daily bear ETF, meaning you will get 2X leveraged exposure to the movements of the TSX 60.
This fund is slightly less than twice the size of HIX, and management fees come in at roughly $16.50 per $1000 invested. This makes sense, as leveraged ETFs often come with higher fees.
You will want to look at this if you want to speculate on the movements in the TSX 60 and want leveraged exposure.
Horizons BetaPro NASDAQ-100 Index -2X Daily Bear ETF (TSE:HQD and HQD.U)
Unlike the S&P 500 inverse ETFs with 1X exposure, the only option you'll have access to in terms of the NASDAQ 100 is a leveraged 2X ETF.
Keep in mind that the NASDAQ has undergone significant volatility in 2022 and 2023. If you use this for short-term trading, know that high single-digit moves daily, particularly around earnings periods, are not out of the question.
The fund has assets under management of around $115M at the time of writing and has one of the highest expense ratios on this list. You'll pay $16.40 annually per $1000 invested in owning this fund.
It is a NASDAQ 100 fund. It tracks only the companies within the NASDAQ 100, including many of North America's largest tech companies also found in other technology ETFs, like Apple, Microsoft, Google, Amazon, Tesla, and Meta.
This fund performed exceptionally well in 2022 due to the volatility and drawdown of the NASDAQ 100. In fact, if you owned the NASDAQ 100 in 2022, you would have lost 28%. With HQD, you would have positive returns of 45.15%.
If you want to own this fund in USD, it is also possible with HQD.U.
Horizons BetaPro Crude Oil Inversed Leveraged Daily Bear ETF (TSE:HOD)
Over the last few years, as trading and speculative activity has ramped up, the popularity of trading crude oil price movements has skyrocketed. With this leveraged inverse ETF from Horizons, investors can gain exposure to twice the movements. Just be prepared for some gut-wrenching volatility.
Crude oil is volatile enough as it is, even within normal Canadian oil ETFs. Introduce a 2X inverse ETF into the mix, and you can see massive price movements in just a morning's worth of trading. An example? During the COVID-19 outbreak in early 2020, this ETF went from $94 to $410 in just three weeks.
On the opposite end of the spectrum? When oil prices somewhat normalized coming out of the flash crash in early 2020, the price of this ETF fell by over 55% in just 4 weeks, and by the end of 2022 was just $11.
Many speculators will find this fund useful around significant news events that could change the price of crude. However, be well aware of how volatile this can be.
Horizons BetaPro Inverse Bitcoin ETF (TSE:BITI)
From crude oil to Bitcoin ETFs, this is another inverse ETF that will provide investors with large-scale volatility.
The fund tracks bitcoin futures on a 1X basis. Although crypto is still highly volatile, this ETF doesn't use any leveraged exposure, which should reduce volatility overall.
The fund has assets under management of $43M at the time of writing and significant fees. You will pay nearly $20 per $1000 invested in owning this fund on an annualized basis.
In 2022, Bitcoin bears got their wish, especially if they owned BITI. The fund gained a whopping 70.3% in 2022 as the prices of cryptocurrencies collapsed due to both negative sentiment and multiple situations of fraud and bankruptcies.
There isn't much more to say about BITI except that it has a USD version that you can own under BITI.U. If you're a Bitcoin bear, this is one of the better funds in Canada to speculate on negative price movements.
Here are some other notable inverse ETFs with relatively small AUM
I tried to stick with funds that have AUM of over $20M in this post. However, there are plenty more inverse options here in Canada. Just note that they do have small AUM. In this situation, there is a chance the fund could be closed down.
Also, smaller funds tend to have higher fees. But here are a list of others:
- For cannabis exposure: BetaPro Marijuana Companies Inverse ETF (TSE:HMJI)
- For silver exposure: BetaPro Silver -2x Daily Bear ETF (TSE:HZD)
- For Canadian bank exposure: BetaPro Eql Wt Cnd Bk 2x Daily Bear ETF (TSE:HBKD)
- For Gold Bullion exposure: BetaPro Gold Bullion -2x Daily Bear ETF (TSE:HBD)
- For gold miner exposure: BetaPro Cdn Gold Miners -2x DlyBear ETF (TSE:HGD)
- For financial exposure: BetaPro S&P/TSX Cap Fncl -2xDlyBear ETF (TSE:HFD)
- For REIT exposure: BetaPro Eql Wt Cnd REIT 2x Dl Bear ETF (TSE:HRED)
- For oil producer exposure: BetaPro S&P/TSX Cap Engy -2xDlyBear ETF (TSE:HED)
What is an Inverse ETF?
The premise of an inverse ETF is that it will do the opposite of the movement of the underlying asset. For example, if we were dealing with S&P 500 ETFs, if you believe the S&P 500 is going to fall, you may buy an inverse ETF that tracks the S&P 500 as if it were going to fall. If the S&P 500 did fall, the ETF would do the opposite and go up.
Is it a Good Idea to buy an Inverse ETF?
That depends on one's investment objectives and strategies. If you're looking to buy an inverse ETF and hold it for an extended period, then no, you shouldn't buy one. These exchange-traded funds are designed to be held for a short time. If held for the long term, there is a good chance you will lose money.
This gets even further amplified with leveraged inverse ETFs. This leads us to our next question.
What is a 3X Inverse ETF?
A 3X inverse ETF would be a leveraged inverse ETF that aims to expose an investor to 3 times the movements of the underlying stock or index it tracks. For example, if the S&P 500 goes down by 2.5%, someone with a 3X inverse ETF would realize gains of 7.5%.
These ETFs are highly volatile and extremely high risk, particularly when one trades on margin. You must know what you are buying and understand the risks.
How do Inverse ETFs Work?
Inverse ETFs use an asset class called a "derivative." A derivative fluctuates in value based on the value of underlying assets. A quick example would be a call option on Tesla, or a futures contract on the price of crude oil or natural gas within commodities ETFs.
The funds can structure their portfolios with these derivatives to benefit from market volatility.
What is the Point of an Inverse Exchange-traded Fund?
If you're buying an inverse ETF, the objective would be to hold the ETF for a short time and profit from the opposite movements of the underlying index or stock the ETF tracks.
A quick example of the benefits of inverse ETFs. If you thought the S&P 500 was going to go down, you could buy an inverse ETF which tracks the S&P 500. If you were correct, that ETF would rise on a fall in S&P 500 price. Obviously, the opposite holds true as well. If you were wrong, the ETF would fall on a rise in S&P 500 price.