A while back the ETF creators out there decided it would be beneficial to the long term, qualified plan investors to have a way to short the markets but not break any rules. See, in the states you cannot short stock without the use of margin and many U.S. investors who have retirement investment accounts are not allowed to have margin in those accounts. This leaves them to constantly be long the markets with nowhere to run when the markets fall.

The way it works is you basically buy into a fund that takes care of shorting the markets for you. The Short S&P 500 (SH  ) for example is one such fund. The goal of the fund is to replicate the exact opposite performance of the S&P 500 for that day. If the S&P 500 is up 1% then the SH seeks to be down about 1% on that day before fees and expenses. That last part is important "before fees and expenses".

See in a standard margin account the normal, retail investor pays to borrow shares on margin. Any use of the margin in the account is subject to an interest fee for the use of that capital. So if you were to short the S&P 500 using say the (SPY  ) and it dropped 1%, yes you would have a gain of 1%, but net you would have a return that was just under that due to the margin rate.

So the inverse ETF's also are subject to fees, both interest, and administrative that they need to recoup. They do this by taking it right out of the ETF itself. These transactions cause what the industry refers to as a "drag". So for every day that the S&P 500 doesn't drop (goes sideways) the SH would lose some value anyways (from the fees).

It is for this reason that most inverse ETF's are only best for short term speculation, or for some advanced hedging of a whole portfolio prior to some major geopolitical events or any other concerns in the short term. To attempt to carry these positions in any other manner would just simply be too costly.