Exchange Traded Funds (ETFs)

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

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%.

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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.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Intelligence Report, Successful Investing, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.