S&P 500 ETF

If you are looking for a short S&P 500 ETF there are a couple highly liquid alternatives from ProShares. The first is the ProShares Short S&P500 (SH) which seeks to create an inverse (-100%) correlation of the daily movement of the S&P 500 before fees and expenses. Since this fund is not leveraged it’s goal is to rise 1% on a given day that the S&P 500 falls by 1%.

SH has been trading since 6/19/2006 so it has seen a few ups and downs already. The annual expense ratio is .92% (92 basis points) and it is currently trading almost 2 million shares per day so it is a liquid ETF for trading.

As you can see from the chart below it does a good job of mirroring the moves in the S&P over the short term but you don’t want to hold this ETF for the long term. As you can see the S&P 500 is basically flat over the entire life of this ETF but SH is down over 35%. Inverse and leveraged ETFs are designed to be trading vehicles, not long term investments.

The second short S&P 500 ETF is a leveraged double short called the ProShares UltraShort S&P500 (SDS). Since this is a double leveraged short etf the goal is to create a double inverse correlation (-200%) to the daily performance of the S&P 500 before fees and expenses. So if the S&P 500 falls by 1% on a given day, the goal of this fund is to rally by 2%.

This ETF is way more popular than SH trading about 25 Million shares per day right now. It has roughly the same annual expense ratio at .90% (90 basis points) and has been trading since 7/11/2006.

As you can see by the chart below the performance of SDS was good when the S&P 500 dove in 2008 as it rose 80% or more when the index fell 40%. However, the index is basically flat over the life of this ETF and SDS has lost nearly 70%. Leading again to the conclusion that it should be used as a trading vehicle to take advantage of short term moves, but is not suitable as a long term investment.

Charts are both from inception of the funds through 1/21/2011