Here's why this ASX ETF is leaping 13% to a new 52-week high today

This ASX ETF is rocketing today. Here's how it is managing to defy the broader market.

ETF on white blocks with a rising arrow on top of coin piles.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It's turning into a day of absolute carnage on the ASX boards today. The S&P/ASX 200 Index (ASX: XJO) has lost a painful 1.56% so far today and is well back below 7,100 points. As you might expect, most ASX shares are down across the boards today, with ASX tech shares taking a big hit. This extends to most exchange-traded funds (ETFs) too. The Vanguard Australian Shares Index ETF (ASX: VAS) has also copped a fall of 1.34% so far today. But it's a whole different story when it comes to the ETFS Ultra Short Nasdaq 100 Hedge Fund (ASX: SNAS).

The SNAS ETF is not your typical exchange-traded fund. It's not designed to hold underlying companies within a portfolio, as most ETFs are. Instead, SNAS is what's known as an inverse ETF. It's also a leveraged (or geared) ETF. An inverse ETF is a fund that is designed, using some tricky financial engineering, to rise in value when the value of an index that it tracks falls. In SNAS' case, the index in question is the US-based NASDAQ-100 (INDEXNASDAQ: NDX).

SNAS-y returns? ETFS Ultra Short Nasdaq 100 Hedge Fund rockets 13%

A leveraged fund again uses financial engineering to give investors an amplified exposure to its underlying investment using borrowed money (or leverage). So in simpler terms, SNAS is designed to rise massively when the Nasdaq 100 Index falls. Here's how the provider ETFS explains it:

SNAS provides exposure to the Nasdaq-100 Index within a target range of -200% and -275% of the SNAS net asset value. Over a short interval of time, this means that for every 1% movement in the Nasdaq 100 Index, an investment in SNAS is anticipated to return between 2.00% and 2.75% in the opposite direction.

Last night (our time), the Nasdaq 100 fell a painful 5.06%, led by massive losses from the US tech giants like Apple Inc (NASDAQ: AAPL) and Amazon.com Inc (NASDAQ: AMZN).

So it's perhaps no surprise then that the SNAS ETF is up a whopping 12.55% so far today to $5.47 a unit. Earlier in today's trading, this ETF rose as high as $5.54, which was a rise of more than 13% at the time. Sometimes, it pays to go short.

But investors should remember that this kind of ETF cuts both ways. In times of rising markets, an inverse, leveraged ETF like this will suffer. That's why it was the worst-performing ETF on the ASX last year, with a 2021 loss of 48.7%.

The ETFS Ultra Short Nasdaq 100 Hedge Fund charges a management fee of 1% per annum.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Sebastian Bowen has positions in Amazon and Apple. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon and Apple. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Amazon and Apple. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on ETFs

ETF spelt out with a rising green arrow.
ETFs

5 high-quality ASX ETFs to buy in August

Let's see what makes these funds top picks for Aussie investors.

Read more »

A businesswoman weighs up the stack of cash she receives, with the pile in one hand significantly more than the other hand.
ETFs

Does the VanEck Wide Moat ETF really have a 6% dividend yield right now?

How can an American-focused ETF pay such a big yield?

Read more »

Happy woman on her phone while her electric vehicle charges.
ETFs

EV demand comes roaring back. Time to buy this EV-focused ASX ETF?

Global EV demand has surged 30% year-on-year.

Read more »

A couple sit in their home looking at a phone screen as if discussing a financial matter.
ETFs

3 high-yield ASX ETFs to beat falling interest rates

Are you looking to boost passive income?

Read more »

A young man wearing glasses writes down his stock picks in his living room.
ETFs

4 reasons why this ASX ETF is one of the best buys today

I think this is one of the most exciting buys for Aussies.

Read more »

a business person checks his mobile phone outside a Wall Street office with an American flag and other business people in the background.
ETFs

S&P 500 reaches another all time high! Why MOAT ETF should outperform IVV ETF from here

Are you looking to invest in US-focused ASX ETFs? Read this first.

Read more »

The letters ETF with a man pointing at it.
ETFs

Invest $5,000 into these ASX ETFs in August

Let's see why these funds could be worth a spot in your portfolio.

Read more »

A smiling woman with a satisfied look on her face lies on a rug in her home with her laptop open and a large cup on the floor nearby, gazing at the screen. researching new ETFs
ETFs

Is the Vanguard Australian Shares High Yield ETF (VHY) unit price a buy for passive income?

The VHY ETF has a reputation for big dividends. Is it a buy today?

Read more »