ProShares Strengthens Grip on UltraShort ETF Market

by on June 18, 2009 | ETFs Mentioned:

ProShares launched four new international ETFs on Thursday, expanding its already dominant line of inverse leveraged ETFs focusing on foreign markets. With the launch of these four funds, ProShares doubles the size of its product line in this area, which already featured -200% leveraged funds tracking the MSCI Japan Index, Xinhua 25 China Index, MSCI Emerging Markets Index, and MSCI EAFE Index. “With this broad line-up, investors can make tactical shifts as conditions change in markets around the world,” said ProFunds Group Chairman and CEO Michael L. Sapir. The new funds are:

  • UltraShort MSCI Europe (EPV)
  • UltraShort MSCI Pacific Ex-Japan (JPX)
  • UltraShort MSCI Brazil (BZQ)
  • UltraShort MSCI Mexico Investable Market (SMK)

All of the new ETFs will seek results that correspond to 200% the inverse of the daily performance of their underlying indexes. The expense ratios for each of the funds is 0.95%, consistent with ProShares’ existing leveraged ETFs. While many ETFs offer expense ratios as low as 9 basis points, fees for leveraged ETFs are traditionally much higher due to higher administrative and trading costs required to track daily performances.

Fuel To The Fire?

The launch of ProShares newest funds comes at a time when leveraged ETFs are attracting a fair amount of criticism. Last week, Morningstar called for increased regulation of ETFs that use derivative instruments to achieve their objectives, claiming that many investors are unaware of the risks associated with these investments. Many have expressed their dislike for leveraged funds (Vanguard Group founder Jack Bogle recently said they “verge on insanity”), with some going as far as to call them fundamentally dishonest products. But leveraged ETFs remain incredibly popular among investors (many of ProShares leveraged funds have average daily volumes exceeding one million shares) and do an excellent job of accomplishing their stated objective. As I wrote earlier this week, more regulation (at least as proposed by Morningstar) is not the answer.

ProShares’ Dominant Position

Since introducing its first short and leveraged ETFs in 2006, ProShares has expanded rapidly, now counting more than 80 ETFs in its product offering and establishing itself as the leader in both the inverse and leveraged ETF markets. The issuer’s success is a testament to the development of the ETF industry over the last few years, as the market has been transformed from one covering only well-known stock and bond indexes to one allowing investors to implement countless strategies, both simple and complex, through the purchase of a single security. ProShares’ astonishing growth also highlights the demand for products that offer inverse exposure to broad markets, a feature unavailable through traditional mutual funds.