Short-Bias ETFs Drew $3.7 Billion In September, Largest Monthly Inflow In 3 Years 

US ETFs alone accounted for $2.2 billion, while Japanese and South Korean funds comprised $653 million and $424 million, respectively, and an additional $1.4 billion was drawn so far this month. 

The LSEG Lipper data shows that short-biased exchange-traded funds (ETFs) are gaining strong inflows from their bets against stock indexes and rapidly growing sectors like technology and artificial intelligence (AI). Global short-bias ETFs have raised a record $3.7 billion in September, the biggest monthly inflow in nearly three years. 

Of this $3.7 billion, US ETFs alone accounted for $2.2 billion while Japanese and South Korean funds comprised $653 million and $424 million, respectively, and an additional $1.4 billion was drawn so far this month. 

Despite the overarching economic stress that looms across the world due to tariff uncertainties, geopolitical tensions and rising inflation, these ETFs have performed considerably well this past year. Historically, global economic pressures have served short-bias funds well, which delivered strong gains even during the 2008 financial crisis. 

These inflows do not necessarily indicate an impending financial downturn. However, when funds gain from bets on market instability speculations, it is considered a sign of poor economic health, which increases valuation risks. 

This year, tech companies rose high from the market optimism surrounding the AI boom, with multinational firms like Nvidia, Microsoft and Oracle making market records on the S&P 500, Nasdaq and Dow. Due to these companies’ performances, the S&P 500, Nasdaq and Dow reached new peaks, climbing 15%, 19% and 10% respectively this year. 

Reuters also reported that the MSCI World index hit a five-year record of its forward 12-month price-to-earnings ratio, which was 20.4 at the end of last month. 

Within the first ten days of October alone, Direxion Daily Semiconductor Bear 3X Shares earned a $255 million inflow, closely followed by $200 million into the ProShares UltraPro Short QQQ ETF and ProShares Short S&P 500 also gained $143 million. 

However, while these ETFs are earning significant gains, market analysts and policymakers alike have advised caution, as there is a risk of near-future correction. Recently, the IMF Managing Director Kristalina Georgieva said that the world economy has shown much resilience despite international shocks, adding that she estimates only a slight contraction in the growth rate for 2025 and 2026. 

Georgieva also said that the US economy was slowing down but had managed to avoid slipping into a recessionary phase that many economists had flagged only six months ago. This pattern was not just restricted to the US but also to many other countries.  

The international economy has managed to sustain itself due to stronger policies, an adaptable private sector and a less-than-anticipated severity of tariff impact. In July, the IMF revised its growth forecast for 2025 by 0.2% to 3.0% and by 0.1% to 3.1% for 2026. 

Similarly, the Bank of England (BoE) also cautioned that these growth spurts should be treated as temporary, as while they do not pose any major threats to the stability of the international economy at the moment, sudden changes could send markets reeling. The BoE warned that financial markets could take a hard hit if investors turn against the prospects for AI or the independence of the US Federal Reserve. 

It cautioned that US share price valuations are mirroring the dotcom bubble to some degree, and that any weakening in the Fed’s credibility could weaken government bonds. 

Jamie Dimon, CEO, JPMorgan Chase, also issued a similar statement that the risks of a significant correction in the US stock market are quite high, and this could happen any time over the next six months to two years.  

ETFs, IPO markets and Bitcoin and other such cryptocurrencies are all gaining in the short-term despite concerns of an overarching economic slowdown. However, these gains do not indicate an overall healthy economy. Therefore, countries must work together to implement stronger policies for financial and economic strengthening, rather than relying on the stock market as a marker of growth.