Seeking Alpha

Trade Radar Operator

About this author:

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.


SymbolNameAverage Daily Volume
QIDUltraShort QQQ20042421
SDSUltraShort S&P50010640286
TWMUltraShort Russell20004337620
QLDUltra QQQ4171179
SKFUltraShort Financials3778876
UYGUltra Financials3778258
DUGUltraShort Oil & Gas3703700
DXDUltraShort Dow302454753
SSOUltra S&P5002368347
FXPUltraShort FTSE/Xinhua China 252260873
SRSUltraShort Real Estate892856
EEVUltraShort MSCI Emerging Markets563881
DDMUltra Dow30528774
UWMUltra Russell2000475894
MZZUltraShort MidCap400451919
SMNUltraShort Basic Materials390431
SHShort S&P500174924
DIGUltra Oil & Gas162924
DOGShort Dow30157933
TBTUltraShort Lehman 20+ Year Treasury156322
MVVUltra MidCap400123451
EFUUltraShort MSCI EAFE104662
PSQShort QQQ100591
UREUltra Real Estate81689
USDUltra Semiconductors65585
MYYShort MidCap40064646
SDDUltraShort SmallCap60060777
ROMUltra Technology52511
RWMShort Russell200043922
PSTUltraShort Lehman 7-10 Year Treasury40535
SJHUltraShort Russell2000 Value40356
SKKUltraShort Russell2000 Growth39434
REWUltraShort Technology37704
EUMShort MSCI Emerging Markets33837
SDPUltraShort Utilities28313
SCCUltraShort Consumer Services27736
UYMUltra Basic Materials27550
EWVUltraShort MSCI Japan24811
SSGUltraShort Semiconductors24423
SIJUltraShort Industrials17818
UKFUltra Russell1000 Growth17312
SAAUltra SmallCap60014532
SZKUltraShort Consumer Goods13972
EFZShort MSCI EAFE12423
UKKUltra Russell2000 Growth11173
UPWUltra Utilities10043
SDKUltraShort Russell MidCap Growth9104
SFKUltraShort Russell1000 Growth8403
SJLUltraShort Russell MidCap Value7639
SBBShort SmallCap6007392
UVTUltra Russell2000 Value7349
UKWUltra Russell MidCap Growth6863
UXIUltra Industrials6775
SJFUltraShort Russell1000 Value6667
RXLUltra Health Care6507
UGEUltra Consumer Goods4853
RXDUltraShort Health Care4822
UVGUltra Russell1000 Value4665
UCCUltra Consumer Services4264
UVUUltra Russell MidCap Value3433
LTLUltra Telecommunications1596
TLLUltraShort Telecommunications368

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

Print this article with comments

This article has 4 comments:

  •  
    I invest in ultra short FXP (China) and SRS (Dow Jones RE index) and have done very well with both. Trades have executed quickly and I chart each in Yahoo and include the FXI and IYR to compare trends as to which is moving up faster.

    I am amazed that there is a way to get a 2:1 ratio against an index, and I admit to investing without knowing all the facts.

    I would appreciate it if you could explain how the process works so that I will have greater confidence in the future as my profit keeps expanding my holdings.

    I appreciate ProShares and the opportunity they have provided to the small investor.
    2008 Jun 28 09:02 AM | Link | Reply
  •  
    really good info, very interesting, thanks!
    2008 Jun 28 06:22 PM | Link | Reply
  •  
    John the bear wrote on June 28:

    I am amazed that there is a way to get a 2:1 ratio against an index, and I admit to investing without knowing all the facts.

    I would appreciate it if you could explain how the process works so that I will have greater confidence in the future as my profit keeps expanding my holdings.

    Please try to find an answer for me.

    Have you asked ProShares to explain it to you?
    2008 Jun 30 06:41 PM | Link | Reply
  •  
    John, That is a great question. I do not have the answer, but I suspect they are using some kind of derivative to produce this. I have found that the Ultra's are fantastic to trade. Good luck.
    2008 Jul 15 07:22 PM | Link | Reply