ProShares Short QQQ (PSQ - Get Rating) offers inverse exposure to the NASDAQ-100 index, an index of 100 tech-heavy companies listed on NASDAQ that excludes financials. This exposure is achieved by the fund using a combination of NASDAQ-100 futures, the NASDAQ-100 ETF (QQQ), and swaps on the index itself.

After the August inflation report came in hotter than anticipated, which hurt investor optimism for cooling prices and a less aggressive Federal Reserve, stocks fell sharply on Tuesday. Tech stocks mainly took a significant hit.

The tech-heavy Nasdaq composite has declined more than 25% year-to-date and more than 10% over the past month. In contrast, PSQ has gained 24.6% year-to-date and 11% over the past month to close its last trading session at $13.49.

Here are the factors that could influence PSQ’s performance in the near term:

Fund Stats

PSQ has $1.50 billion in assets under management and a NAV of $13.61. Its gross expense ratio of 0.95% is significantly lower than the category average of 1.12%. The fund has a net flow of $783.72 million over the past year and $212.16 million over the past month.

Top Holdings

The fund’s top holdings include Nasdaq 100 Index Swap Goldman Sachs International with a 19.9% weight, Nasdaq 100 Index Swap Citibank Na with 19% weight, and United States Treasury Bills with a 7.9% weight.

Uncertain Market Conditions

Since the hotter-than-expected inflation data for August has increased the odds of an aggressive interest rate hike, the market is expected to remain under pressure on concerns over the economy slipping into a recession. Therefore, PSQ is expected to benefit from the market’s potential downtrend.

POWR Ratings Reflect Promising Prospects

PSQ’s strong fundamentals are reflected in its POWR Ratings. The ETF has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

PSQ has an A for Trade, and Peer grade and a B for Buy & Hold grade. In the B-rated 50-fund Inverse Equities ETFs group, it is ranked #3.

Click here to see more of PSQ’s POWR Ratings.

Bottom Line

The market is expected to continue witnessing significant volatility amid the persistently high inflation and the Fed’s upcoming rate hike. However, inverse ETFs like PSQ help hedge against market downturns by moving in the opposite direction. Moreover, given the strong fund stats, I think the PSQ could be a solid addition to your portfolio now.

How Does ProShares Short QQQ (PSQ) Stack Up Against its Peers?

While PSQ has an overall POWR Rating of B, one might consider looking at its industry peer, ProShares Short Dow30 (DOG - Get Rating), which has an overall A (Strong Buy) rating.

PSQ shares were trading at $13.61 per share on Thursday morning, up $0.12 (+0.89%). Year-to-date, PSQ has gained 25.67%, versus a -16.65% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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