SIE (Securities Industry Essentials) Practice Exam

Which of the following would NOT be profitable in a rising market?

1. Call options

2. Bull market funds

3. Inverse ETFs

4. Real estate investment trusts

The correct answer is: Inverse ETFs

In a rising market, investments that are aligned with the upward movement of asset values generally provide returns. In this context, inverse ETFs are designed to move in the opposite direction of the index or asset they track. Therefore, they are structured to gain value when the market is declining. Conversely, they lose value when the market is on an upward trajectory. Call options benefit from rising prices because they grant the holder the right to buy an asset at a predetermined price, allowing them to capitalize on upward price movements. Bull market funds are specifically designed to gain from upward trends in the market and typically invest in securities expected to perform well during bullish phases. Real estate investment trusts (REITs), which often see appreciation in asset values and increased rental income in a strong economy, tend to be profitable in rising markets as well. This makes inverse ETFs distinct, as they would not be profitable in a rising market, which aligns with the identified answer.