Four New Triple ETF Pairs From ProShares

by: Bill Luby

When Direxion launched the first batch of triple ETFs back in November 2008, I may have been the first person to openly champion them, even going way out on a limb with Prediction: Direxion Triple ETFs Will Revolutionize Day Trading.

Fifteen months later, triple ETFs have exploded in popularity, though they sometimes confound investors, to the point that regulators eventually stepped in, with FINRA increasing margin requirements for triple ETFs on December 1, 2009.

Now it appears that triple ETFs have weathered the regulatory storm and occasional investor discontent, with trading volumes recently having picked up again after signs of a plateau.

Triple ETFs – particularly those which are rebalanced on a daily basis – received another vote of confidence today, as ProShares launched eight new triple ETFs. ProShares, which launched its first two triple ETFs -- UPRO and SPXU -- in June of last year, is now back with a broader line of index offerings. New today are two pairs which cover new ground, and two that closely overlap existing Direxion triple ETFs. The pair that interests me the most are those which track the NASDAQ-100 index (NDX): TQQQ is the new +3x ETF for the NDX; SQQQ is the new -3x ETF. Also breaking new ground are a pair linked to the Dow Jones Industrial Average: UDOW is the +3x ETF; and SDOW is the -3x variant.

The two more problematic new ETF pairs are in the mid-cap and small-cap spaces. For the S&P MidCap 400 index, ProShares is offering UMDD (+3x) and SMDD (-3x). The risk here is that these two offerings may be too similar to the Direxion MWJ and MWN, which are based on the Russell Midcap index. An even larger overlap problem is likely with the new ProShares Russell 2000 index ETFs, which include URTY (+3x) and SRTY (-3x). Here there is very little to distinguish these ETFs from the popular Direxion TNA and TZA ETFs.

In a market where a first mover advantage is often decisive, ProShares faces an uphill battle. But UPRO and SPXU have already been widely accepted and there is no reason to believe that TQQQ/SQQQ and UDOW/SDOQ will not enjoy similar success. The prognosis for the new mid-cap and small-cap ETFs, however, is not as favorable.

Disclosures: Short TZA at time of writing

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