Short funds

Betashares short funds offer exposure to the inverse performance of sharemarkets. These funds are designed to help investors manage risk or take a tactical view during market declines, without the need for margin loans or direct short selling.

Code	Fund name	3m Performance 3 months	1y Performance 1 year	3y Performance 3 years	5y Performance 5 years	10y Performance 10 years	Cost* Cost*
BEAR	Australian Equities Bear Complex ETF	-5.3%	-8.3%	-6.9%	-9.2%	-8.6%	1.48%
BBOZ	Australian Equities Strong Bear Complex ETF	-13.0%	-22.8%	-20.1%	-23.3%	-22.8%	1.29%
BBAB	Geared Short Australian Government Bond Complex ETF	0.8%	6.7%	–	–	–	0.99%
BBFD	Geared Short US Treasury Bond Currency Hedged Complex ETF	-3.8%	9.2%	–	–	–	0.99%
BBUS	US Equities Strong Bear Currency Hedged Complex ETF	-18.2%	-32.1%	-31.7%	-28.9%	-30.7%	1.32%

Hedge your portfolio

Protect your portfolio from market declines, without having to crystallise losses.

Profit from declining markets

Inverse ETFs provide the opportunity to make magnified gains when sharemarkets fall.

Convenience

Avoid the costs and complications of futures, CFDs and short selling. Investors are not exposed to margin calls.

What are inverse ETFs and short funds?

These are funds that seek to provide ‘short’ exposure to the sharemarket. They provide investors with the opportunity to profit from, or protect against falling sharemarkets.

In broad terms, inverse/short funds aim to provide returns that are negatively correlated to a specified sharemarket. They are designed to go up in value when the market goes down, and down in value when the market goes up.

Inverse/short funds are also sometimes known as ‘Bear funds’. Betashares manages three Bear funds: Australian Equities Bear Complex ETF, Australian Equities Strong Bear Complex ETF & US Equities Strong Bear Currency Hedged Complex ETF.

It is important to understand what is meant by ‘inverse’ or ‘short’ exposure.

The term ‘inverse’ is sometimes (incorrectly) taken to mean that the Fund will return the exact opposite of the underlying sharemarket, over any period of time. In other words, that an inverse fund negatively tracks a particular index. Or in simple terms, that an inverse fund produces the ‘mirror image’ of an investment in the index. Taking this view, if the sharemarket fell by 10% over a month, the inverse fund would rise by 10%.

This is not the case, in Australia at least!

Inverse/short funds do not aim to produce the exact opposite of an index’s return over any period.

‘Inverse’ and ‘short’ mean that the fund aims to produce returns that are negatively correlated with a specified index – but the Fund does not aim to produce the exact ‘opposite’ of the index returns.

How do inverse ETFs and short funds work?

Returns that showed a perfect, 100% negative correlation with an underlying index over an indefinite period of time would only be possible from a fund that achieved its short exposure by short-selling the shares in the underlying index.

This is not how inverse/short/bear funds work.

These funds achieve their short exposure by selling futures contracts, not by short selling the underlying shares. They also typically rebalance their short exposure periodically to keep the level of short exposure within a specified range. As a result, short funds do not aim to produce the exact opposite of the index’s return over time.

The Betashares Bear funds achieve their short exposure by selling share index futures contracts. They are not designed to provide the exact opposite of a relevant benchmark return on a given day. Investors should instead expect a return that falls within a specified range on a given day (and not over any longer period), as described below.

See here for an in-depth explanation on how the Betashares Bear funds work, and how their prices are determined.

See here for information on the features, benefits and risks of Betashares’ Bear funds.

Why are the Bear funds rebalanced?

BEAR aims to provide returns that have a correlation of between -90% and -110% with the Australian sharemarket on a given day.

BBOZ and BBUS seek to provide returns that have a correlation of between -200% and -275% with the Australian or US sharemarket respectively on a given day.

As the underlying market moves, and the value of the fund changes, the fund’s gearing level changes. If the gearing moves outside the target range, the fund’s exposure will be rebalanced to bring it back within the target range.

Advantages of investing in Bear funds

Investing in the Betashares Bear funds is a simple and cost-effective way to gain short exposure, with no additional paperwork or accounts required (if you already have an account with a broker).

In the case of BBUS and BBOZ, gearing is managed within the fund, so there are no margin calls for investors and an investor cannot lose more than their initial investment. This is different to obtaining a short stock position, where there is unlimited potential liability given there is theoretically no limit on how far a stock can go up in value.

Risks when investing in Bear funds

It’s important to be aware that portfolio exposure and the gearing ratio (for BBUS and BBOZ) changes day to day. This means that while the fund is generally expected to generate a return that is negatively correlated to the benchmark on a given day within the target short exposure range, because of portfolio rebalancing and the effects of compounding of investment returns it is not possible to predict returns over any period greater than one day. Returns over periods longer than a day may therefore differ in amount and possibly direction from the daily target return range.

The use of gearing in BBOZ and BBUS magnifies both gains and losses and generates higher levels of return volatility than non-geared investments.

There are also other risks that are fully described in each Bear fund PDS, including:

Market risk
Negatively correlated returns risk
Futures risk

Tips for using Bear funds

Don’t set and forget – keep an eye on your position daily
Read the PDS and TMD
Seek professional advice