ProShares ETFs: Why Volume Trading Makes a Difference

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Includes: DDM, DIG, DOG, DUG, DXD, EEV, EFU, EFZ, EUM, EWV, FXP, MVV, MYY, MZZ, PSQ, PST, QID, QLD, REW, ROM, RWM, RXD, RXL, SAA, SBB, SCC, SDD, SDK, SDP, SDS, SFK, SH, SIJ, SJF, SJH, SJL, SKF, SKK, SMN, SRS, SSG, SSO, SZK, TBT, TLL, TWM, UCC, UGE, UKF, UKK, UKW, UPW, URE, USD, UVG, UVT, UVU, UWM, UXI, UYG, UYM
by: Trade Radar Operator

ProShares has a diversified lineup of ETFs that allows investors to adopt various strategies based on individual sectors, market-cap, desire to be long or short, etc.

Of the 64 ETFs currently offered, it is clear that some are more popular than others. This popularity is translated into trading volume.

Why volume matters --

The greater the volume, the smaller the bid/ask spread tends to be. Higher spreads are like a hidden fee that subtracts from investor returns. This is especially of concern to short-term traders.

On a related note, an investor might ask if this is a liquidity issue. Is it related to the liquidity of the stocks that make up the ETF? According to IndexUniverse.com, research shows that it is the liquidity of the ETF, and not the liquidity of the underlying components that really matters.

Lower volume can be associated with higher expense ratios. The heavier trading volumes associated with larger funds implies that these ETFs can spread their expenses over wider ownership bases.

The greater the volume, the closer the ETF seems to track its associated index. This effect seems to especially come into play with the ultra ETFs that are supposed to generate 200% of the change in their associated index on a daily basis. The smaller the volume, the more inconsistent the ability to achieve the 200% move. For non-leveraged ETFs, this effect can manifest itself as a divergence between the price of the ETF and its net asset value [NAV].

Below we present a table listing all but two of the ProShares ETFs and their average daily volume (shares traded) as calculated over the last two years or the life of the fund, whichever is less.


Symbol Name Average Daily Volume
QID UltraShort QQQ 20042421
SDS UltraShort S&P500 10640286
TWM UltraShort Russell2000 4337620
QLD Ultra QQQ 4171179
SKF UltraShort Financials 3778876
UYG Ultra Financials 3778258
DUG UltraShort Oil & Gas 3703700
DXD UltraShort Dow30 2454753
SSO Ultra S&P500 2368347
FXP UltraShort FTSE/Xinhua China 25 2260873
SRS UltraShort Real Estate 892856
EEV UltraShort MSCI Emerging Markets 563881
DDM Ultra Dow30 528774
UWM Ultra Russell2000 475894
MZZ UltraShort MidCap400 451919
SMN UltraShort Basic Materials 390431
SH Short S&P500 174924
DIG Ultra Oil & Gas 162924
DOG Short Dow30 157933
TBT UltraShort Lehman 20+ Year Treasury 156322
MVV Ultra MidCap400 123451
EFU UltraShort MSCI EAFE 104662
PSQ Short QQQ 100591
URE Ultra Real Estate 81689
USD Ultra Semiconductors 65585
MYY Short MidCap400 64646
SDD UltraShort SmallCap600 60777
ROM Ultra Technology 52511
RWM Short Russell2000 43922
PST UltraShort Lehman 7-10 Year Treasury 40535
SJH UltraShort Russell2000 Value 40356
SKK UltraShort Russell2000 Growth 39434
REW UltraShort Technology 37704
EUM Short MSCI Emerging Markets 33837
SDP UltraShort Utilities 28313
SCC UltraShort Consumer Services 27736
UYM Ultra Basic Materials 27550
EWV UltraShort MSCI Japan 24811
SSG UltraShort Semiconductors 24423
SIJ UltraShort Industrials 17818
UKF Ultra Russell1000 Growth 17312
SAA Ultra SmallCap600 14532
SZK UltraShort Consumer Goods 13972
EFZ Short MSCI EAFE 12423
UKK Ultra Russell2000 Growth 11173
UPW Ultra Utilities 10043
SDK UltraShort Russell MidCap Growth 9104
SFK UltraShort Russell1000 Growth 8403
SJL UltraShort Russell MidCap Value 7639
SBB Short SmallCap600 7392
UVT Ultra Russell2000 Value 7349
UKW Ultra Russell MidCap Growth 6863
UXI Ultra Industrials 6775
SJF UltraShort Russell1000 Value 6667
RXL Ultra Health Care 6507
UGE Ultra Consumer Goods 4853
RXD UltraShort Health Care 4822
UVG Ultra Russell1000 Value 4665
UCC Ultra Consumer Services 4264
UVU Ultra Russell MidCap Value 3433
LTL Ultra Telecommunications 1596
TLL UltraShort Telecommunications 368
Click to enlarge

ETFS missing from table: Short Financials (NYSEARCA:SEF), Short Oil & Gas (NYSEARCA:DDG).



Stick to those ETFs in the top one third of this list and you will be able to avoid the the problems inherent in the less popular ETFs.