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Tuesday, November 25, 2008

Eight new ProShares ETFs - what they're all about

A batch of new ProShares ETFs became available today. The ProFunds company announced that 8 new ETFs began trading today and that 4 more will soon be available.

As can be expected with ProShares, there is a mix of ultra and ultra short ETFs. The ultra ETFs offer twice the performance of the underlying index on a daily basis while the ultra short ETFs offer twice the inverse performance on a daily basis.

The new ETFs fall into two categories: commodities and currency.

The new commodity ETFs --

In the commodity sector, ProShares currently offers the Short Oil & Gas ETF (DFG), the Ultra Oil & Gas ETF (DIG) and Ultra Short Oil & Gas ETF (DUG). They have now added the following four ETFs:
  • Ultra DJ-AIG Commodity (UCD) - based on the Dow Jones-AIG Commodity Index
  • Ultra Short DJ-AIG Commodity (CMD) - based on the inverse of the Dow Jones-AIG Commodity Index
  • Ultra DJ-AIG Crude Oil (UCO) - based on the Dow Jones-AIG Crude Oil Sub-Index
  • Ultra Short DJ-AIG Crude Oil (SCO) - based on the inverse of the Dow Jones-AIG Crude Oil Sub-Index
In looking at the documentation, it appears that the crude oil ETFs use futures to generate their returns. The commodity ETFs seem to use swaps.

The composition of the underlying commodity index is as follows:
  • Energy 35.09%
  • Precious Metals 10.19%
  • Industrial Metals 17.79%
  • Livestock 8.50%
  • Grains 19.15%
  • Softs 9.28%
The new currency ETFs --

Currency trades have been big in the news lately as the U.S. dollar has rallied strongly and the Euro has plunged. The following ETFs provide a leveraged way to play the currency trade and have been eagerly awaited by many investors:
  • Ultra Euro (ULE) - twice the EUR/USD daily price change
  • Ultra Short Euro (EUO) - twice the inverse of the EUR/USD daily price change
  • Ultra Yen (YCL) - twice the JPY/USD daily price change
  • Ultra Short Yen (YCS) - twice the inverse of the JPY/USD daily price change
These ETFs seem to primarily use forward contracts to generate their returns though the documentation boilerplate lists swap agreements, forward contracts, and futures and options contracts.

All of these ETFs did trade today with the Ultra Crude attracting the most volume: a meager 8,210 shares. Note that Yahoo! Finance has not yet figured out that the symbol SCO is now the Ultra Short Crude Oil ETF. I'm sure these ETFs will eventually be embraced by investors but for now, be careful of low volume (read "ProShares ETFs - why trading volume makes a difference").

Coming soon are gold ETFs and silver ETFs in the usual ultra and ultra short varieties.

Disclosure: none

2 comments:

Speedmaster said...

Did you see this? Ouch. ;-)

http://www.bloggingstocks.com/2008/11/25/citigroup-makes-a-50-000-donation/

TradeRadarOperator said...

Citi just can't do much right these days...

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