New Leveraged ProShares ETFs Coming

According to Reuters and MarketWatch. SEC has a filing dated May 22 from ProFunds which describes 12 new ETFs. Highlights from the prospectus:

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ProShares Trust (the “Trust”) is an exchange-traded fund organized as a Delaware business trust that consists of separate investment portfolios (each, a “Fund”). ProShare Advisors LLC (“ProShare Advisors”) serves as the investment advisor to each Fund.

The shares of each Fund (“Shares”) will be listed on the American Stock Exchange (“Exchange”). Shares trade on the Exchange at market prices that may differ from the indicative intraday value (“IIV”) of the Shares disseminated by the Exchange and may be above, below or equal to the Funds’ end of day net asset value (“NAV”). Each Fund has its own CUSIP number and exchange trading symbol. Each Fund issues and redeems Shares on a continuous basis at NAV in large, specified numbers of Shares called “Creation Units.” Creation Units of the Bullish Funds are issued and redeemed principally in-kind for securities included in the relevant underlying index and an amount of cash. Creation Units of the Bearish Funds are purchased and redeemed in cash.

BULLISH FUNDS

The Bullish Funds seek to provide daily investment results, before fees and expenses, that double (200%) the daily performance of the applicable index.


Ultra500 Fund Double (200%) S&P 500® Index
Ultra100 Fund Double (200%) NASDAQ-100 Index®
Ultra30 Fund Double (200%) Dow Jones Industrial Average
UltraMidCap400 Fund Double (200%)S&P MidCap400 Index

BEARISH FUNDS

The Bearish Funds seek to provide daily investment results, before fees and expenses, that either match (100%) or double (200%) the inverse (opposite) of the daily performance of the applicable index.

Short 500 Fund
Short 100 Fund
Short 30 Fund
Short MidCap400 Fund
UltraShort 500 Fund
UltraShort 100 Fund
UltraShort 30 Fund
UltraShort MidCap400 Fund

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PRINCIPAL RISK CONSIDERATIONS

The Fund is subject to the following principal risks:


• Aggressive Investment Technique Risk – The Fund uses investment techniques that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose UltraShort 500 Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.


• Correlation Risk – A number of factors may affect UltraShort 500 Fund’s ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.


• Counterparty Risk – The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, UltraShort 500 Fund may lose money.


• Credit Risk – An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact UltraShort 500 Fund’s performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.


• Equity Risk – The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.


• Inverse Correlation Risk – Shareholders in UltraShort 500 Fund should lose money when the index underlying the Fund’s benchmark rises – a result that is the opposite from traditional equity or bond funds.


• Leverage Risk – The Fund’s NAV and market price will likely be more volatile than the index underlying its benchmark and funds that do not employ leverage. Leverage should cause UltraShort 500 Fund to lose more money in market environments adverse to its daily investment objective than an unleveraged investment.


• Liquidity Risk – In certain circumstances, UltraShort 500 Fund may not be able to dispose of portfolio investments within a reasonable time at a fair price.


• Market Price Variance Risk – UltraShort 500 Fund’s NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices for shares. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the market price varies significantly from NAV.


• Market Risk – UltraShort 500 Fund is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.


• Non-diversification Risk – UltraShort 500 Fund is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.


• Repurchase Agreement Risk – Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, UltraShort 500 Fund may lose money because it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.


• Short Sale Risk – UltraShort 500 Fund may sell securities short to seek gains when its benchmark index declines or to adjust investment exposure to its benchmark index. The Fund’s use of short sales involves additional transaction costs and other expenses. Under certain market conditions, short sales can increase the volatility, and decrease the liquidity, of a Fund and may lower a Fund’s return or result in a loss.


• Volatility Risk – UltraShort 500 Fund seeks to achieve an inverse of a multiple of an index and therefore will experience greater volatility than the index underlying its benchmark and consequently has the potential for greater losses.

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I think these ETFs will be a success. There are many traders in IRA's and 401(k) accounts who want to short the market but can't due to IRS and exchange regulations. I'm willing to bet that at least one of the short ETFs will crack the top 10 in average daily volume among all ETFs.

 

Yep, need to get all those newbie poker players back to the markets....maybe this will help.

Place your bets!

Soon there will be more ETFs than mutual funds...haaaaaa.

 

this is great stuff!

 

I wonder if any of the e-mini traders will give it a try, once the volume and liquidity increases.

 

What's the excitement about?

Nothing that can't already be done using other instruments with more liquidity and lower cost.

Just more ways to scam average Joe Schmuck.

 

"Non-diversification Risk – UltraShort 500 Fund is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund."

Anyone can cast more light on this?

It's clear that borrow liquidity is going to be concentrated in big names, so some form of correlation magic spell must be cast to mimick a negative one beta with the S&P.

 

any idea when these will become available?

 

I'm not sure. It took Rydex about 2 months from filing their N1-A until their ETFs started trading.

 

Unlikely that futures traders would want to switch to a product with less liquidity, less leverage, and higher commissions.