Skip to main content

Signs of a top? -- reverse split for 9 ProShares ETFs

ProShares announced that it will execute reverse share splits on nine ProShares ETFs. Here are the details:

Ticker Fund Split Ratio Price
DUG UltraShort Oil & Gas 1:5 $11.22
EEV UltraShort MCSI Emerging Markets 1:5 $9.37
FXP UltraShort FTSE/Xinhua China 25 1:5 $7.15
GLL UltraShort Gold 1:5 $9.02
SMN UltraShort Basic Materials 1:5 $6.56
SRS UltraShort Real Estate 1:5 $5.62
URE Ultra Real Estate 1:5 $8.66
UYG Ultra Financials 1:10 $7.36
ZSL UltraShort Silver 1:10 $3.77

The splits take effect after the close on April 14. Here's the reason for doing the reverse splits according to ProShares: For funds with lower nominal prices, bid-ask spreads represent a higher percentage of the transaction price than for higher-priced funds, increasing both costs and volatility — even when the spread is tight. ProShares believes the reverse splits will adjust the share prices to a more cost-efficient level for the Funds' shareholders and that commissions charged by brokers who assess their clients on a per-share basis may be smaller, as investors will need to buy or sell fewer shares.

For those who followed ProShares through the depths of the stock market downturn, there are some surprises on this list. Take SRS, for example. Just look at this chart:


It's just incredible that this ultra short real estate ETF has gone from a peak over $200 to less than $10. During the worst of the market crash, this was one of the go-to ETFs as real estate cratered and dragged the entire market down.

Now, investors seem positively enamored with real estate despite the constant stream of analysis suggesting losses in commercial real estate continue to increase. Though the index upon which SRS is based consists mostly of REITs, it doesn't help that the residential real estate market is still struggling.

With the 2x leverage calculated on a daily basis, SRS has crumpled as its counterpart, the  iShares Dow Jones U.S. Real Estate Index ETF (IYR) has surged.

With all the ultra short ETFs in the table above showing prices so low as to need reverse stock splits, it has the flavor of a market top. Underlying indexes have rebounded not only strongly but steadily. That steady advance has been very destructive to these ultra short ETFs, with their tracking of underling indexes on a daily basis serving to drive prices ever lower.

I can't help but worry that this is a sign that the sectors represented by these ultra short ETFs have come a little too far too fast. As earning season begins to unfold, bringing with it the usual volatility, we may look back at this announcement and say that it marked a temporary top. Bullish ETF investors in these sectors might want to take some profits now.

Comments

Popular posts from this blog

Brazil - in a bubble or on a roll?

A couple of years ago, no one recognized the real estate bubble even though it was under everyone's nose. Now, analysts and bloggers are seeing bubbles everywhere they look. One of them, they say is in Brazil whose Bovespa stock market index has doubled in the last 12 months. Does the bubble accusation hold water? I don't think so and here are 7 reasons why Brazil is by no means a bubble economy: Exports have held up over the past year thanks to demand from China for Brazil's soya exports and iron ore. This was helped by the the Brazilian government's drive to improve trade links with Asia and Africa. Export diversification, spurred by a more active trade policy and increased focus on "south-south" trade under current president Lula, helped mitigate the decline in demand from OECD (Organization for Economic Co-operation and Development) countries A "sensible" economic framework has been in place since the 1990's. This has included inflation

Thursday Bounce: Trend Busters, Swing Signals and Trend Leaders for July 9, 2009

This is a quick post to announce that we have published Thursday's Trend Leaders, Swing Signals and Trend Busters at Alert HQ . All are based on daily data. Today we have the following: 72 Swing Signals -- A couple of days ago we had 35 signals, today we have twice as many. Happily, we now have 65 BUY signals, a mere 4 SELL Signals plus 3 Strong BUYs. Whoo-hoo! 56 Trend Leaders , all in strong up-trends according to Aroon, MACD and DMI. There are 18 new stocks that made today's list and 60 that fell off Tuesday's list. 48 Trend Busters of which 5 are BUY signals and 43 are SELL signals The view from Alert HQ -- Talk about mixed signals. If you look at our Swing Signals list you would think the market was in the middle of a big bounce. BUY signals are swamping the SELL signals and we even have a few Strong BUYs. Yes, there's a good sprinkling of tech stocks and tech ETFs but the distribution is pretty broad-based with a good number of different sectors represented, eve

Unlock Stock Market Profits - Key #1

This is the first in an ongoing series of articles where I discuss what I feel are keys to successful investing. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. ( Click here to read the original post ) There are two basic steps to investing. First, you need to find stocks that seem to have some potential. Then you have to determine whether these stocks are actually good investments. There are many stocks that at first glance look interesting, but further research reveals that there are too many negatives to warrant taking a position. This first post in the series starts at the beginning: getting good investment ideas. Key #1: If something special is happening to a stock, it will be reflected in some kind of unusual activity in the markets. As individual investors, we will never be the first to know; however, unusual activity can be an early sign that allows us to follow the Wall Street professional