By Patrick Watson
Today ProShares brought out three new inverse ETFs focused on the domestic Real Estate and Basic Materials sectors as well as one tracking large-cap China stocks. All these funds are have a daily performance target of -100% of their respective indexes. ProShares remains the only provider of inverse equity and fixed income ETFs with less than 2x daily leverage.
For a long time, ETF sponsors tended to roll out new funds either one at a time or as groups with some sort of connection to each other. Lately we are seeing more of these polyglot launches and filings. This is probably a sign that the industry is maturing; the obvious menu items having been covered (several times in some case), sponsors are now going back to fill in the gaps. That’s what the smart ones are doing, at least. Others insist on cloning ETFs that already exist.
The new ProShares ETFs are:
- ProShares Short Real Estate (REK) (summary)
- ProShares Short Basic Materials (SBM) (summary)
- ProShares Short FTSE/Xinhua China (YXI) (summary)
All three have expense ratios of 0.95% and are mainly populated by large, liquid names in the respective categories. As such, and because they come from ProShares instead of some unknown start-up, we suspect REK, SBM and YXI will attract enough assets to be viable. They should stay off the ETF Deathwatch list, at least.
Potential investors should be aware that the lack of leverage does not mean an inverse ETF is exempt from tracking error. The daily reset to -100% still results in distortions, and they become more significant with longer time periods. This can work for you or against you, of course. But it is a good bet that if one of the benchmarks goes down, say, -25% over several months, the corresponding inverse ETF will not go up exactly +25%. In theory the inverse ETF could even go down, depending on the path taken by the index and the length of time involved. These funds are still best used as trading vehicles, not long-term investments.
Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.