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

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.

The post Here’s why this ASX ETF is leaping 13% to a new 52-week high today appeared first on The Motley Fool Australia.

More reading

• VAS: Were you better off buying the Nasdaq ETF?
• Is Vanguard’s VAS the ASX’s cheapest index fund?
• What is the Vanguard Diversified High Growth Index ETF invested in?
• How does the VAS dividend compare to a high-yield ETF?
• Own the Vanguard Australian Shares High Yield ETF? Here’s what you’re invested in

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.

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