45 Best Inverse/Short ETFs by Assets, Volume & Expenses

Inverse ETFs Enable You To Profit In Market Declines. We List & Analyze the Best Short ETFs Based on Net Assets Managed, Liquidity & Expense Ratio

Barry D. Moore CFTe

January 4, 2022

What Are Inverse & Short ETFs?

Inverse or Short ETFs are exchange-traded funds that enable you to bet against (short) a market, sector, or index. Typically, Short ETFs simplify the process of shorting the market and incorporating leverage, as you can simply purchase the ETFs that trade on a live exchange.

Inverse ETFs usually come with built-in leverage of 1x, 2x, or 3x leverage. If you buy a 3x Inverse ETF on any market day, and the index moves down 1%, you can expect a 3% profit. Conversely, if the market moved up 3% on that day, the 3x leveraged ETF would ensure you incur a loss of 9%.

The Best Short & Inverse ETFs

While there is no single “Best Short/Inverse ETF,” the best ETFs all share the following traits. Firstly, they should have significant assets under management; secondly, they should have large enough trading volume to ensure liquidity; and lastly, they should have low management fees.

This is why our list of the best Short & Inverse ETFs includes the 10-day average trading volumes, the net assets under management, and the expense ratio.

5 Tips on ETFs That Short The Market?

1. Inverse ETFs Should be Traded on a Daily Basis?

All short or inverse ETFs have warnings that they should only be traded on a daily basis. Of course, you can hold them for longer than one day, but you will see mismatches in the return of the short ETF vs. the actual index over time.

Inverse ETFs Do Not Match the Index Performance Because:

The underlying contracts supporting the Inverse ETFs need to be rebalanced at the end of the trading day. This causes slippage.
The effect of the volatility of an index will affect compounding, which affects the inverse ETF. For more information, see this Leveraged ETF FAQ.

Related Article: Our Resident ETF Trader Joe’s Leveraged ETF Strategy

2. Inverse ETFs Should Have Good Liquidity & Volume

It is important that if you purchase an Inverse ETF, you can sell it when you want to, for a price that is close to your target price. There are 244 Inverse/Leveraged ETFs on the US exchanges, and the average 10-day trading volume is 1.8 million shares per day. You will want to choose ETFs that average at least 500,000 traded per day.

3. Choose ETFs With Higher Assets Under Management

The median amount of Net Assets under management for leveraged and inverse ETFs is $50 million. It is wise to only utilize ETFs with more than $100 million in assets managed; this helps with liquidity and the fund’s stability.

4. ETFs Should Have Low Expenses

Any Inverse or Leveraged ETF you choose to trade should have lower expense ratios. Of the 244 ETFs in this study, the average expense ratio is 0.96%, but the range of expenses spanned from 1.85% to 0.35%. The largest most liquid funds have an expense ratio between 0.95% and 1.07%, which is acceptable.

Related Article: The 21 Best Ethical ESG ETFs

5. Use a Commission Free Broker to Minimize Costs

When purchasing ETFs, you should select a broker that enables you to buy and sell ETFs with $0 zero commissions. Firstrade has over 2,200 commission-free ETFs, the largest in the industry. Read the Firstrade Review or visit Firstrade.