Shorting and hedging with ETFs

ETFs can be sold short to hedge a portfolio of stocks, bonds, commodities or funds. Securities lending revenue on ETFs can be attractive for investors who own ETF shares. The lending revenue that can be earned on ETFs could more than cover the annual TER (total expense ratio).

Investors can also use inverse (short) and leverage inverse ETFs to implement hedges and short economic exposure. There are currently almost 60 inverse/inverse-leveraged ETFs in the US and over 50 listed on non-US exchanges.

The rules on shorting ETFs on financial indices and the use of inverse and leveraged inverse ETFs on financial indexes in the various markets are continually being updated as regulators react to market conditions.

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