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Tuesday, February 24, 2009

ProShares ETFs - with volume through the roof, who are the new leaders?

Last summer (June 2008) I wrote a post titled "ProShares ETFs - Why trading volume makes a difference."

Since then, there have been two situations that suggest it might be a good time to look at trading volume again: ProShares has created a half dozen new ETFs that weren't in our previous analysis and market conditions have taken a further turn for the worse with the S&P 500, for example, going from roughly 1325 to under 800.

Below we present a table contrasting average daily volume in the year leading up to June 25, 2008 with average daily volume in the eight months since June 25, 2008. It is sorted in descending order based on the latest volume numbers.

SymbolNameAvg Daily Volume prior to 6-25-08Avg Daily Volume since 6-25-08
UYGUltra Financials3,778,258112,176,547
SSOUltra S&P5002,368,34756,212,929
SDSUltraShort S&P50010,640,28643,730,513
QIDUltraShort QQQ20,042,46538,670,681
QLDUltra QQQ4,171,17931,438,395
SKFUltraShort Financials3,778,87630,151,740
DUGUltraShort Oil & Gas3,703,70020,425,378
DIGUltra Oil & Gas162,92413,143,336
DDMUltra Dow30528,77412,160,807
DXDUltraShort Dow302,454,75311,606,795
SRSUltraShort Real Estate892,85611,143,286
UREUltra Real Estate81,6899,003,131
TWMUltraShort Russell20004,337,6207,580,650
UCOUltra DJ-AIG Crude Oil 7,238,102
UWMUltra Russell2000475,8944,743,293
UYMUltra Basic Materials27,5504,714,658
SMNUltraShort Basic Materials390,4313,192,335
FXPUltraShort FTSE/Xinhua China 252,260,8732,635,880
EEVUltraShort MSCI Emerging Markets563,8812,516,679
TBTUltraShort Lehman 20+ Year Treasury156,3221,953,684
SHShort S&P500174,9241,137,686
MZZUltraShort MidCap400451,9191,064,628
MVVUltra MidCap400123,4511,059,239
DOGShort Dow30157,933776,583
USDUltra Semiconductors65,585389,699
PSQShort QQQ100,591316,107
EFUUltraShort MSCI EAFE104,662276,254
ROMUltra Technology52,511253,786
UGLUltra Gold 213,400
RWMShort Russell200043,922198,642
SCCUltraShort Consumer Services27,736149,963
REWUltraShort Technology37,704139,168
SAAUltra SmallCap60014,532112,946
PSTUltraShort Lehman 7-10 Year Treasury40,535104,673
SSGUltraShort Semiconductors24,42390,478
SDDUltraShort SmallCap60060,77787,470
SIJUltraShort Industrials17,81871,930
AGQUltra Silver 69,143
UKKUltra Russell2000 Growth11,17362,808
RXLUltra Health Care6,50754,273
UVTUltra Russell2000 Value7,34951,201
EUMShort MSCI Emerging Markets33,83748,629
MYYShort MidCap40064,64647,522
UVGUltra Russell1000 Value4,66546,306
SDPUltraShort Utilities28,31344,947
SZKUltraShort Consumer Goods13,97243,940
SKKUltraShort Russell2000 Growth39,43441,554
UPWUltra Utilities10,04341,375
SJHUltraShort Russell2000 Value40,35640,062
EFZShort MSCI EAFE12,42339,222
UKFUltra Russell1000 Growth17,31237,990
UXIUltra Industrials6,77536,765
UKWUltra Russell MidCap Growth6,86332,999
SFKUltraShort Russell1000 Growth8,40327,882
EWVUltraShort MSCI Japan24,81126,478
SDKUltraShort Russell MidCap Growth9,10424,653
UVUUltra Russell MidCap Value3,43321,522
UCCUltra Consumer Services4,26421,220
SJFUltraShort Russell1000 Value6,66719,651
UCDUltra DJ-AIG Commodities 16,787
UGEUltra Consumer Goods4,85315,250
YCLUltra Yen 14,143
SBBShort SmallCap6007,39213,601
ULEUltra Euro 12,610
LTLUltra Telecommunications1,5969,038
SJLUltraShort Russell MidCap Value7,6397,957
RXDUltraShort Health Care4,8226,953

The first thing that jumps out is that acceptance of these ETFs has really skyrocketed. For the more popular ETFs, average daily trading volume is up orders of magnitude higher compared to last summer.

Look who's on top of the list: Ultra Financials (UYG). Wow, people have been trading the heck out of this ETF! Its UltraShort equivalent (SKF) has only half the volume though it seems to get twice the publicity. With volume in the bullish ETF double the volume in the bearish ETF, should we assume the bottom for financial stocks has been reached?

The UltraShort QQQ (QID) was by far the ETF with the highest average daily volume in our last survey. This ETF has now dropped to fourth place and its bullish Ultra counterpart, SDS, has become popular enough to boast volume nearly as high as QID.

Some of the new ETFs have also made a big splash. The Ultra DJ-AIG Crude Oil ETF (UCO) didn't even exist last summer but is now trading over 7M shares per day. And this is despite the fact that oil is clearly not in a bull market at the moment. Interestingly, the Ultra DJ-AIG Commodities ETF (UCD), which is comprised of up to 15% of oil futures, is pretty much being neglected, trading less that 17,000 shares a day. Also in the commodities sector and a new entry since our first post, the Ultra Gold ETF (UGL) is now trading a respectable 200,000 shares per day.

I am also struck by the fact that there is so much volume for the Ultra (bullish) ETFs in the top half of our list. With so much doom and gloom hanging over the markets since last summer, I had expected to see the UltraShort (bearish) ETFs become the volume leaders. In some cases, the opposite occurred as we pointed out when discussing UYG and SKF above. In many cases, however, volume is running more or less even between the Ultra and UltraShort ETFs.

In our last post, we made a few generic points about these ETFs and the impacts of trading volume: that higher volume generally leads to narrower bid/ask spreads, higher volume often results in tracking of the underlying index more closely and that higher volume can allow fees to be spread across more shares thus reducing expenses for individual holders. All these still hold true. Back then, I suggested investors should limit themselves to the top third of the list. As volume has grown, though, it now appears that the entire top half of the list looks pretty safe to trade.

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