An Inverse Fund That Rises When U.S. Fixed-Rate Bonds Fall

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.
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The Direxion Daily Total Bond Market Bear 1X Shares (SAGG) is an inverse exchange-traded fund (ETF) that is intended to rise when an index of investment grade, U.S. fixed-rate bonds falls.

In market conditions in which the bond market is dropping, this fund is designed to have positive returns of similar magnitude. SAGG will allow investors to more directly bet against bonds than ideologically correlated investments such as stocks. 

However, I do not recommend holding shares of this fund for the long term. This fund has not performed well in the most recent 12 months. In fact, it is down nearly 6%, as bonds have risen in the same period. 

Shorter time periods than the past 12 months do not look much better for SAGG, except perhaps for the last month, when it rose slightly. The expense ratio of 0.49% makes this fund a little on the expensive side to hold, much like many inverse ETFs. It does, however, pay a 1.84% dividend.

The fund’s assets under management total nearly $3 million. This puts it below my recommended threshold for investment, but the fund’s strategy is nonetheless interesting. The ticker symbol seems to refer to AGG, the large and very liquid iShares Core U.S. Aggregate Bond ETF. You can think of SAGG as a way to “short AGG,” since the two funds have opposite strategies based on the same index.

Chart Courtesy of StockCharts.com

This fund is not very liquid, so it may be advisable to use limit orders to trade it. The average spread currently sits at 0.44%.

If you think the bond market in the United States is headed for pain sometime soon, Direxion Daily Total Bond Market Bear 1X Shares (SAGG) may be an investment worth investigating.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

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