Investment in Short ETF
Investment in Short ETF is very different from regular investing. “Short” – means short selling transactions when securities are loaned and sold with obligation to return it after some pre-agreed period. The value of Short ETF changes in opposite direction to the value of index which is followed by the ETF. Usually daily return is the same but reverse. For example, if index daily return would be 2.1%, then Short ETF should have -2.1% daily return. Still it doesn’t mean that if index will fall 10% in one month that you will have a positive return of 10% from Short ETF. The mathematics of this works differently over longer term, and you can read more about it in Ultra ETF topic.
Short ETFs are not the best investments for a long term period, but still can be useful short-term instruments in large investment portfolio for risk management. They are easy to administrate (buy and sell) as they are traded on exchanges, has justifiable fees.
The biggest disadvantage compared to the traditional short selling transactions is that ETF require full amount of capital invested, when short selling usually takes only a part of capital for the same amount that is under risk.