ProShares Plans Share Splits On Leveraged And Inverse ETFs

by: Tom Lydon

With increased activity in the stock markets, alternative exchange traded fund provider ProShares plans on executing share splits for popular leveraged products and reverse share splits on declining inverse strategies.

According to ProShares, the seven ETFs will undergo a 2-for-1 share split as of the close of markets on June 5 and payable after the close of markets on June 7. The funds will begin trading at their post-split price on June 10.

  • ProShares Ultra Consumer Goods (NYSEARCA:UGE)
  • ProShares UltraPro S&P500 (NYSEARCA:UPRO)
  • ProShares UltraPro MidCap400 (NYSEARCA:UMDD)
  • ProShares Ultra Russell3000 (NYSEARCA:UWC)
  • ProShares Ultra Health Care (NYSEARCA:RXL)
  • ProShares Ultra Consumer Services (NYSEARCA:UCC)
  • ProShares UltraPro Russell2000 (NYSEARCA:URTY)

The 2-for-1 split will cut the price per share on each fund while proportionately increasing the number of shares outstanding by a factor of two.

Companies typically enact a price split to help make shares seem more affordable to smaller investors.

Additionally, ProShares will perform a reverse split on eight ETFs effective June 10.

  • ProShares UltraShort DJ-UBS Natural Gas (NYSEARCA:KOLD): 1-for-4
  • ProShares VIX Short-Term Futures ETF (NYSEARCA:VIXY): 1-for-5
  • ProShares Ultra VIX Short-Term Futures ETF (NYSEARCA:UVXY): 1-for-10
  • ProShares UltraShort Oil & Gas (NYSEARCA:DUG): 1-for-4
  • ProShares UltraPro Short Financials (NYSEARCA:FINZ): 1-for-4
  • ProShares UltraPro Short 20+ Year Treasury (NYSEARCA:TTT): 1-for-4
  • ProShares UltraShort Russell1000 Value (NYSEARCA:SJF): 1-for-4
  • ProShares UltraShort MSCI EAFE (NYSEARCA:EFU): 1-for-4

If the splits create shares that are not an exact multiple of the split ratio, the fractional shares will be redeemed for cash, which may cause some investors to realize a gain or loss.

Leveraged long strategies have been a popular draw, especially during the bull rally as the broader market break historical highs. On the other hand, the rally has caused leveraged inverse strategies to suffer higher losses.

Leveraged ETFs try to magnify the daily movements of an underlying asset or index through a double- or triple-multiplier by using derivatives or futures contracts designed to earn a multiple of the return for a given Index. Inverse ETFs also use derivatives in an attempt to achieve a negative, or inverse, multiplier to the direction of the underlying asset or index.

Traders should know that inverse and leveraged products are not suitable for long-term buy-and-hold investors as the compounding affects from the daily rebalances would create divergences from the ETF's performance to that of the underlying index, especially over periods of high volatility.

Max Chen contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.