PSQ delivers the inverse of the daily return of the Nasdaq-100 index — if QQQ falls 2% in a day, PSQ is designed to rise 2%. This sounds straightforward, but the daily resetting mechanic creates a critical compounding problem over longer holding periods. In a trending down market, PSQ performs roughly as expected. In a volatile sideways or recovering market, daily rebalancing erodes value through a phenomenon called volatility decay — PSQ loses money on both up and down days when they roughly cancel out over time. Holding PSQ for more than a few days introduces meaningful tracking error relative to the implied cumulative short exposure. It should be used as a short-term hedge against Nasdaq-100 positions or a tactical directional trade, not as a long-term portfolio hedge. For investors, the 0.95% expense ratio adds ongoing cost to the compounding drag. If the intention is a multi-month hedge, direct short positions or put options on QQQ typically offer better risk-adjusted execution than a daily-reset inverse fund.
