Inverse ETFs Australia: How to Use and Understand Them in 2025

When markets tumble, most investors instinctively reach for the panic button. But what if you could actually profit when the ASX 200 slides? Enter the world of inverse exchange-traded funds (ETFs)—a growing niche for Australians who want to hedge or speculate in volatile times. With recent global economic jitters and the RBA’s 2025 policy signals, understanding inverse ETFs has never been more relevant.

What Are Inverse ETFs and How Do They Work?

An inverse ETF is a fund designed to deliver the opposite daily return of a specific index or asset. For example, if the S&P/ASX 200 falls by 1% in a day, an inverse ETF tracking that index aims to rise by 1%. They achieve this by using derivatives—such as futures or swaps—rather than simply short-selling stocks.

• Daily reset: Inverse ETFs are structured to match the inverse of the index’s daily performance. Over longer periods, returns can diverge from expectations due to compounding.
• Australian offerings: The Betashares Australian Equities Bear Hedge Fund (ASX: BEAR) and the Betashares US Equities Strong Bear Hedge Fund (ASX: BBUS) are two prominent examples on the ASX.

Suppose you believe Australian shares are due for a correction after a hot run in early 2025. Buying an inverse ETF lets you potentially profit if your prediction comes true—without needing a margin loan or brokerage account for short selling.

Why Are Inverse ETFs Gaining Attention in 2025?

Several factors are fuelling interest in inverse ETFs among Australian investors this year:

• Market volatility: Global uncertainty, lingering inflation, and uneven economic data have led to sharp swings on the ASX and Wall Street.
• Policy changes: The RBA’s cautious rate cuts in 2025 have created both optimism and anxiety, with investors split on the future direction of Australian equities.
• Accessibility: Inverse ETFs are now easier to trade on the ASX, requiring no margin and offering daily liquidity.

For example, in March 2025, when the ASX 200 dropped over 5% on renewed China growth concerns, the BEAR ETF saw its highest trading volume in over a year. This reflects a growing appetite for tactical tools that can hedge portfolios or bet against the market without complex derivatives accounts.

Risks and Considerations: Are Inverse ETFs Right for You?

Despite their appeal, inverse ETFs come with caveats that investors must not ignore:

• Compounding risk: Because inverse ETFs reset daily, holding them for more than a day can lead to returns that diverge from simply the opposite of the index’s performance over time. In choppy markets, this effect can be amplified.
• Short-term focus: Inverse ETFs are best used for short-term trading or hedging. They’re not suitable for long-term investments or for those seeking to ‘ride out’ a bear market for months.
• Costs: Management fees tend to be higher than standard ETFs, and bid/ask spreads can widen during volatile periods.
• Leverage risks: Some inverse ETFs use leverage (e.g., BBUS targets -2x or -3x the daily move), magnifying both gains and losses.

Who should consider them? Inverse ETFs might suit active traders, tactical investors, or those looking to temporarily hedge an existing equity portfolio. However, they require careful monitoring and a clear exit strategy. For most long-term investors, traditional diversification and defensive assets remain a safer approach.

How to Trade Inverse ETFs in Australia

Getting started is as simple as buying shares in any ETF on the ASX via your brokerage account. Here are a few tips for 2025:

• Check the ETF’s Product Disclosure Statement (PDS) for details on structure, fees, and risks.
• Use limit orders to avoid wide spreads in volatile markets.
• Monitor your position daily; inverse ETFs are not ‘set and forget’ products.
• Consider tax implications of short-term trading.

With more products and better liquidity on the ASX in 2025, inverse ETFs are becoming a mainstream part of sophisticated investors’ toolkits. But as with any powerful tool, they require respect and understanding.