Comparisons and historic classifications are part of everyday life on stock markets. Positive superlatives have tended to dominate over the last few years, with many markets reaching new highs following sell-offs due to the coronavirus pandemic. That is now in the past. In the first half of the year, equities as an asset class went through a historically significant correction. Take Wall Street, for example: on the New York stock market, the S&P 500 Index ended the half down a good fifth. That represents the biggest first-half drop in barometer stocks since 1970. On the US technology stock market, the Nasdaq, 30 June saw the end of what was actually the weakest first six months of a year since it was founded in 1971. For investors recently accustomed to success, then, 2022 brought the bitter discovery that things do not necessarily go in only one direction.
“Downward movements are unavoidable on the financial markets” – this was the advice given by the strategists at Swissquote back in early 2021. Although the SMI and its like were then still in the middle of the bull market, the experts emphasised the risk of a correction and the sleepless nights that this would cost many an investor. To avoid these, Swissquote expanded its “Themes Trading” platform with the Global Inverse 2.0 Index around 15 months ago. “With a little financial understanding and know-how, investors can make drops on the market work for them and strengthen their portfolio effectively in troubled times rather than decimating it,” is how the initiators summarise the point behind this benchmark. What this requires is short positioning. This concept describes the possibility of selling equities short. In this process, the investor first sells a borrowed security. If the price falls as expected, the position is closed out again at a lower level, a corresponding profit is generated and the share is returned to the lender.
Management fee: 0.70%
Index Sponsor: Swissquote Bank SA
Issuer: Leonteq Securities AG
Although Swissquote does not take individual short exposures for the Global Inverse 2.0 Index, the strategy bets on falling prices for thousands of international stocks. It can do so thanks to what are known as short ETFs. Passive funds of this type follow a particular stock market barometer – but in reverse. Indeed, the inverse participation even acts as a lever. To give an example, a short ETF with a factor of 2 becomes 2% more expensive as soon as the underlying market slips 1%. This interaction is seen as common on a day-to-day basis. At the moment the Swissquote Global Inverse 2.0 Index consists of nine passive funds (see table). Behind these ETFs is a whole array of individual stocks. The Emerging Markets Index, for instance, contains almost 1400 companies. On Wall Street, the Global Inverse 2.0 Index has a short position on both the S&P 500 and the Russell 2000 small cap index.
Leonteq is allowing an investment in this special stock market barometer through a tracker certificate. When global equity markets lost ground in the first half of the year, the time for this product had come: the Global Inverse 2.0 Index appreciated by almost a fifth from January to June. Of course, this investment strategy is not without its risks. It should be noted, firstly, that the underlying functions with the aid of derivatives, which makes tracking errors possible. Performance can therefore deviate from the intended inverse course of the markets involved. Furthermore, there is a risk that the bear market will come to an end again and prices will head back up. In this scenario the inverse strategy would come under pressure. While global equity markets were able to make up some ground at the start of the second half, it is probably much too early to call a real turnaround. In short, this product could be interesting if only with a view to a good night's sleep.
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