Trading Betapro ETF's

Discussion in 'ETFs' started by sbn, Feb 12, 2009.

  1. sbn


    Hi everyone,

    What does everyone think about Horizons Betapro ETF's and trading them. These Betapro's give 2X the exposure and if traded could be create some nice returns if done properly. But there seems to be some strange features on the ETF's which force it to reset or rebalance themselves (?). And the numbers on returns don't add up especially over the long-term. It seems the longer you hold onto these ETF's the higher the chance of losing. Any thoughts on these ETF's and any suggestions for trading them.


  2. dave74


    These Betapro ETFs are weird. I don't understand this "daily rebalancing". Be careful of them.
  3. AAA30


    They are only good for day trading and suck to hold longer term. They seem to amplify the problems with the other leveraged ETFs and to an unpredictable degree.
  4. dave74


    I'm guessing you want to play oil with Betapro. I found USO has the best correlation to oil.
  5. One thing for sure, if there is leverage, you must account for the interest on that leverage otherwise there would be an arbitrage opportunity. No free lunch on the street.
  6. I didn't know much about Betapro before I read this post. I'd suggest reading the prospectus though because you'll find some interesting things. From my initial read (link below)

    First, betapro is a Canidian company - I'm not 100% sure how this works, but it looks like they have hired ProShares to trade their ETFs - not manage or advise, just to execute the trades, get exposure, etc. This could be only for the NYSE based funds they offer... or all, not sure.

    Fees seem very high – 1.15% management fee (not sure if they have waived it down to standard .75% or not (75pbs is where other leveraged ETFs are at). There are also “forward fees” which can be an additional 30-50 basis points (.3-.5%) so the total fees appear to be significantly higher than many other ETFs, 145-165 basis points versus closer to 100 basis points – negligible to day traders short term people but the difference between the two base fee structures is about $11/day per million under management which does add up.

    All of their other fees mentioned (redemption fees, other fees, brokerage fees, etc.) are all Primary Market fees and are factored into the spread – which are ultimately passed on to you and I in the secondary market – but any liquid ETF with a penny spread it really does not factor in.

    I think the most important thing to note is the “valuation period”. Remember ETFs are mutual funds with intra-day liquidity. “Valuation” is striking a NAV – which is early in many of their funds – either due to trading on the Toronto Stock Exchange or due to the commodities markets closing early. I don’t want to put up incorrect info so I’m going to go research and I’ll post my findings – but I think what this means is that you start to trade similarly to after-hours sessions once the ETF has been valued. Take a look at how the 3x ETFs trade after hours – they can really move up/down a bunch from where they traded last on the NYSE during open session. I would assume (without having checked) that this would lead to tracking errors and price inconsistencies after valuation with betapro… but I’m not positive - you should call and ask them these questions.

    The fees seem high, the structure seems a little weird to me, the early create/redeem (valuation) times seem like they would cause problems… I should also say that I work for the 3x etf company, however we do not offer any 2x etfs nor do we offer an oil etf.

    sbn – most all leverage ETFs rebalance daily. All that means is that if oil is up 2% today the bull/bear pair will be up +/- 4% today, however on a longer term, say a month, if oil is up 10% the bull/bear pair will not be up +/-20%. Think of it as the ETF day trading, they take $100mm (or whatever the assets in the ETF are) and go into the market for that day, give you 2x, 3x, etc. returns for that day only, then close out and start all over again the next day. This leads to compounding and price decay over time. Daily rebalancing is the industry standard at present for leveraged ETFs. The only difference is, and I’m speculating here, that you may see unpredictable results because it appears that Betapro values and prices differently than what we consider “normal” leverage etfs. Also the fees are higher so that will add to performance issues, but only in rare cases.

    Sbn – I mentioned that I work for the 3x etf company, not trying to market/sell but take a look at our educational documents. They explain daily leverage, compounding, etc. and these same rules can be applied to Betapro if you want to invest with them.

    Quote from our home page:
    Do you believe:
    • A Direxion Share ETF will return 3 times the index it tracks for a period greater than 1 day.
    • A "buy and hold" strategy is appropriate for Direxion Shares.
    • If a bull Direxion Share has a positive return for a given period, the bear Direxion Shares that tracks the same index must have a negative return.

    If so, please visit our Education Center before investing. These are not good assumptions. We would like to educate you further on our products.
  7. Not today.
    USO is DOWN with March WTI +$4.11
    All the other months are flat to slightly up.