Seeking Alpha
Long only, value, special situations, long-term horizon
Profile| Send Message|
( followers)  
ETFs are something like a hybrid between a mutual fund and traditional equity shares. ETFs hold assets such as stocks, commodities, or bonds, and are designed to trade close to its net asset value (NAV) over the course of the trading day, much like common equity would.
Conversely, a traditional open-end mutual fund does not trade throughout the day, but instead adjusts its price after the markets close to reflect the NAV change that occurred that day. Other differences exist between most ETFs and mutual funds, including that several ETFs have considerably lower fees. This is not always the case, though, as several mutual funds now offer competitive fees and several ETFs do have fairly high fees.
This is a comparison of several leveraged ETFs which have become popular trading and investing vehicles over the last few years. These ETFs usually hold options, futures and/or some other derivative securities that allow them to multiply the approximate return of an index, sector, industry, commodity or other collection that the ETF attempts to track. Moreover, several of these leveraged ETFs are short or bearish investments, where the leveraged bet is against the performance of that which it tracks.
Below, I have listed the most popular leveraged bear and short ETFs based upon average trading volume, with each having an average daily volume between 5 and 26 million shares. I have also provided their current fees (expense ratios) as well as their 2011-to-date and 1-month performance rates.
Direxion Daily Financial Bear 3x Shares (FAZ)
  • Fee: 0.95%
  • 1-month: -8.66%
  • 2011-to-date: 12.13%
Direxion Daily Small Cap Bear 3x Shares (TYP)
  • Fee: 0.95%
  • 1-month: -14.07%
  • 2011-to-date: -17.98%
UltraPro Short S&P 500 ProShares (SPXU)
  • Fee: 0.95%
  • 1-month: -11.34%
  • 2011-to-date: -13.50%
UltraShort 20+ Year Treasury ProShares (TBT)
  • Fee: 0.95%
  • 1-month: -10.90%
  • 2011-to-date: -37.34%
UltraShort QQQ ProShares (QID)
  • Fee: 0.95%
  • 1-month: -12.34%
  • 2011-to-date: -18.94
UltraShort Russell 2000 ProShares (TWM)
  • Fee: 0.95%
  • 1-month: -8.59%
  • 2011-to-date: -4.13%
UltraShort S&P 500 ProShares (SDS)
  • Fee: 0.95%
  • 1-month: -6.98%
  • 2011-to-date: -6.40%
In terms of performance, several of these options have performed quite poorly this year, with several down double digits year to date even though the markets that they were betting against are also down. The only above-listed ETF that is positive so far within 2011 is FAZ, which is a 3x financial bear ETF. It is up about 12% this year, though most financials are down considerably more than that. Nonetheless, one could have sold FAZ at the height of the August panic for a 60% gain versus the 2011 starting price. Since July, the volatility within these leveraged products has increased considerably. See the 2011-to-date chart, below:
Click to enlarge
Additionally, as it turns out, all of these listed high-volume, leveraged ETFs have an expense ratio of 0.95%. Investors should also note that these leveraged ETFs generally have higher fees than do their non-leveraged and long brethren. For example, numerous broad market, large-cap and fixed income ETFs have fees below 0.2%, while almost all leveraged ETFs have fees of at least 0.75%, if not higher.
Disclaimer: This article is intended to be informative and should not be construed as personalized advice as it does not take into account your specific situation or objectives.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Source: Leveraged Short / Bear ETFs: Recent Performance Review Of 7 Popular Funds