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Bear ETFs that are beating the 2020 market crash

Alaska Peninsula brown bear (Ursus arctos horribilis) hunting for salmon, Katmai National Park, Alaska, USA

An Alaska Penninsula brown bear (Ursus arctos horribilis) diving after a salmon in Alaska's Katmai National Park and Preserve. (An Alaska Penninsula brown bear (Ursus arctos horribilis) diving after a salmon in Alaska's Katmai National Park and Preser.

The best performing ETF has returned more than 121% since the market crash began.

Few stocks have escaped the apocalyptic market crash that begun almost exactly a month ago. Since the market peak on 20 February, Australia's benchmark S&P/ASX200 index has fallen by more than 30%, and global markets have fared little better.

So it may come as a surprise that there are around a dozen exchange traded funds (ETFs) that have netted positive returns during the crash.

ETFs typically track stock market indices such as the ASX200 or the S&P500, so when markets fall, most ETFs move with them, and vice versa.

But there are a few interesting exchange traded products that are bucking the trend. Below are 11 ETFs that I identified out of the 216 listed on the ASX that are still delivering profits to investors.

Exchange traded productCodeReturn (19 Feb - 19 Mar)
BetaShares U.S. Equities Strong Bear Hedge FundBBUS128%
BetaShares Australian Equities Strong Bear Hedge FundBBOZ111%
BetaShares Australian Equities Bear Hedge FundBEAR42%
BetaShares Strong US Dollar Fund (Hedge Fund)YANK45%
BetaShares U.S Dollar ETFUSD20%
ETFS Enhanced USD Cash ETFZUSD20%
BetaShares Euro ETFEEU17%
Perth Mint GoldPMGOLD10%
ETFS Physical GoldGOLD11%
VanEck Vectors China New Economy ETFCNEW8%
BetaShares British Pound ETFPOU6%

ETFs are normally considered to be passive and relatively safe investment products that track stock prices, but that's not always the case.

How are these in the green?

These days, the term ETF can also apply to listed actively managed funds and even hedge funds that use leverage or derivatives to short the market. These are far riskier than a typical index fund.

The top performers on the list from Betashares are three such funds – also called "bear market funds" – that seek to profit from falling equity prices.

Top of the list is BBUS, which aims to deliver a 2-2.75% return for every 1% the US market falls. This is why it has returned a staggering 128% since the market started crashing.

The second-highest performer BBOZ uses the same strategy but tracking the Australian stock market – it has returned around 111% since late February.

The ETFs are actively managed and use borrowed funds (called leveraging) to magnify price movements. The risk here is that it can work the other way too and magnify losses.

That explains why both BBUS and BBOZ were the worst performing funds of 2019, as both the Australian and US markets had their best year since 2007 – just before "you know what" occurred.

Bell Direct's market analyst Jessica Amir had this to say about "bear ETFs": "Although [the returns] may seem attractive, investors have to remember to approach it with absolute caution. It’s a short term trading instrument."

Unlike most ETFs that are designed to be held over a long period of time, bear funds are best traded for short periods.

"Remember, it's designed to go up when the market goes down (and vice versa). It's very risky though... No one can pick the bottom, no one can pick the top," said Amir.

Other top performers on the list track the exchange rate of global currencies in relation to the AUD. Because the AUD has been falling to record low levels in recent weeks, ETFs such as the BetaShares Euro ETF (EEU) and BetaShares US Dollar ETF (USD) have subsequently seen big gains.

For more information, head to our ETF investing guide or our coronavirus stocks page.

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