New ProShares ETFs Go 3X

Some people just can’t get enough leverage, apparently.  Today ProShares unveiled eight new ETFs offering long and inverse exposure to popular stock indexes with 300% daily leverage objectives.  Day traders should be pleased.

The new bullish funds are:

• ProShares UltraPro Dow30 (UDOW)
• ProShares UltraPro S&P MidCap400 (UMDD)
• ProShares UltraPro QQQ (TQQQ)
• ProShares UltraPro Russell2000 (URTY)

The new inverse ETFs are:

• ProShares UltraPro Short Dow30 (SDOW)
• ProShares UltraPro Short S&P MidCap400 (SMDD)
• ProShares UltraPro Short QQQ (SQQQ)
• ProShares UltraPro Short Russell2000 (SRTY)

(Click the ticker symbols above for the ProShares page on each fund.)

The new ETFs follow the Dow Jones Industrial Average, the S&P MidCap 400, the Nasdaq 100, and the Russell 2000.  ProShares already offered 3X and -3X access to the S&P 500 via UltraPro S&P500 (UPRO) and UltraPro Short S&P500 (SPXU).  The new funds round out the firm’s 3X offering in U.S. domestic equity benchmarks.

This aggressive entry into the 3X space is obviously a competitive shot back at DirexionShares.  ProShares must have realized that the short-term traders who are the audience for leveraged ETFs will take all they can get.  3X is better than 2X.  Where it ends is unclear; if either firm thought they could get away with 4X or 5X, my guess is they would be doing it now.

The licensing of S&P, Dow Jones and Nasdaq indexes gives ProShares a point of differentiation with Direxion, most of whose funds follow less popular Russell and MSCI benchmarks.  On the other hand, Direxion is still the only sponsor to offer 3X long and short ETFs on Treasury bonds, domestic sectors, emerging markets, China, and Latin America.  These will be their niche going forward, at least until ProShares enters those markets, too.

Perhaps this goes without saying by now, but please be aware that leveraged and inverse ETFs are subject to huge daily swings.  Moreover, their daily leverage reset can result in significant performance distortions over periods longer than a day.  These are tools for traders, not everyday investors.  Use them carefully if you use them at all.

Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.