Published on 9/26/2022

Inverse ETFs

The current market we are suffering through as investors is demoralizing. When people are feeling defeated, they can either despair or get creative and keep trying. A lot of investors who are a bit more skilled and knowledgeable then the common majority resort to creative ways of investing. I am not talking about fine art and wine and NFT’s though. I am talking about highly risky and short-term assets like Inverse ETFs.

I will not bore the reader with C3’s thoughts on ETF’s as we have written about our issues with ETFS in length HERE, HERE and HERE. What we will do is give you some basic definitions concerning Inverse Funds and what the thought process is behind them from both a financial and moral perspective.

DEFINITIONS

• Inverse ETFs – An investable asset that uses various derivatives to profit from a loss in value of an underlying asset.
• Futures Contract – An agreement to buy or sell an asset at a specific price at a specific time in the future.
• Derivatives – A financial contract whose value is dependent on an underlying asset.
• How ETFs work explainer video

The BASICS

Essentially an inverse ETF like the SPDN is something that tracks an index like the SPY and does the opposite of what that index does. If the SPY goes up, then the SPDN will go down (More or less) and vice versa. Pretty simple stuff from a macro level.

However, the way this happens is pretty complicated. An Inverse ETF uses a mish mosh of futures contracts, derivatives and other assets to make this happen. A lot of Inverse ETFs are pretty unique on how they produce the opposite of a given index and some are pretty standard on just using low balled futures contracts. But all this means that the inverse ETF is not actually owning anything tangible. Of course, stocks in themselves are not really tangible but inverse indexes are going even further into the realm of abstraction.

Why do we care about something being abstract or tangible? Well, as Christian investors we care about the reality that God created for us and for the same reason we are not big fans of the metaverse, we are also not big fans of abstract investments that are solely in existence to make money.

Okay, now let us repeat a few tired points so we are all on the same page.

Making money is not in of itself bad, but the sole pursuit of it as an end is morally wrong.

The metaverse, Crypto and stocks are not inherent evils just because they are less tangible than a glass of milk, but they more easily lead to sin and depravity because of their addictive nature that is tethered to something that is not existence in physical reality.

I know we are getting a bit Meta here (pardon the pun), but keep in mind that we are not saying that abstract things are bad in of themselves. What we are saying is that abstract things should be used with caution and not be used to replace physical realities just so we can make more money or indulge in some other selfish desire.

THE ANSWERS

Okay, enough abstract mumbo jumbo philosophy…let’s talk nuts and bolts. Are Inverse ETF’s a good financial investment? Are we going to Hell if we invest in them?

The answer to the first questions is inverse ETFs can be lucrative investments at very specific points in time. When the economy is hitting a recession or a certain sector or index is hitting a bear market then for that specific point in time an inverse ETF maybe a wise financial investment. However, inverse funds should never really be held for the long-term because they become distorted over time due to fees and a not-so-exact science. Plus, the market generally ticks up and if you are forever betting against the market then you will most certainly lose when it is all said and done.

The answer to question number two of whether you are going to hell if you invest in an inverse ETF is…we have no idea!! Though shall not judge (on the state of a soul’s salvation) or so we have been taught. However, the ethics behind an inverse ETF do not sit well with us and our contributors. Though we have heard the argument that betting against certain things like the SPY that is made up of a bunch of immoral companies is a good way of combatting those immoral companies. Yet, we can’t help but think it would be better to just support the morally good rather than putting our efforts on just bashing the immoral. An analogy to help paint the picture…We shouldn’t be screaming that Planned Parenthood is killing babies (Even if its true), we should rather be highlighting the beauty and goodness of motherhood (And fatherhood).

Remember that the ends never justify the means. If we are investing in pornography just so we can donate a bunch of money later to a pregnancy crisis center that does not wipe out the way in which the money was made. Investing in an inverse ETF is just betting that something will fail, and while this at times makes for a savvy financial strategy it seems to leave something to be desired in the realm of Christian Morality.

TRICKY MORALITY

Investing is tricky moral business. Thousands of words could be written just on the moral nuances of inverse ETFs and we have not even touched on leveraged ETFs or Mutual Funds. We do not have a hard and fast Yes or No on whether inverse ETFs are good, but we do list a few questions below that we think all Christian investors should spend time in prayer about before investing in such assets.

1. Is it morally acceptable to invest in something, do nothing with it, and then sell it for a profit at a later time? What role does intention play in this scenario?
2. Is betting against something the best way to use your God given capital? Or should we always look to promote the good rather than beat down the evil? What is the difference?
3. How much attention should we pay to things that are not tangible in regard to wealth?

The above questions are difficult to answer but if you are at least thinking about them and spending time in prayer with our Lord Jesus Christ then I think the answers will be revealed to you on a very individualistic way.