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3 “Ultrashort” ETFs Thrust Into The Limelight

16 May 2011 at 11:24 am by Gary Gordon     Bookmark and Share    Follow EtfExpert on Twitter

I want to believe that I am still a capable basketball player. I am 6′ 2″ with an ample frame. I’ve got a fair amount of skill with my left hand. And I genuinely enjoy the half-court offense. (Translation: I’m “bulky,” left-handed and I don’t particularly like to run.)

The reality may be even more dismal. Younger guns leap, sprint and pass… so quickly and so effortlessly… my court presence is an exercise is in obsolescence.

What we want to believe (perception) and what is actual (reality) play equally unique roles in the world of market-based securities. For example, when the iShares Silver Trust (SLV) rocketed from $16 to $48 in less than 1 year, there were many who wanted to believe that the 200% surge was entirely attributable to dollar depreciation and increasing global demand. The reality? Silver mania had gotten ahead of itself.

Sure, you can still be a commodity bull like¬†Jim Rogers. Yes,¬†you can estimate silver’s true worth at $70 per ounce. Yet¬†you¬†can’t¬†discard the reality that speculators first pushed silver into the stratosphere… then they¬†”shorted” the heck out of the dynamic metal. The lesson? Nothing goes vertical indefinitely.

In truth,¬†prior to April,¬†several¬†Inverse ETFs had gone largely unnoticed.¬†More recently,¬†however, a number of “ultra-shorts”¬†have been receiving record inflow; in many instances,¬†the volume of shares¬†trading hands has increased ten-fold.

1. ProShares UltraShort Silver (ZSL). The average volume in February and March was 2,000,000 shares. The average volume today? Closer to 20,000,000… a ten-fold increase. Similarly,¬†net assets under management have swelled from $127M to $336M.

ZSL endeavors to¬†provide daily investment results¬†that correspond to twice¬†the inverse (opposite) of the daily performance of silver bullion. (Review The Day The Commodity ETFs Died for a ZSL “speculation” that led to 80% in one week.)

2. ProShares Ultra-Short DJ UBS Commodity (CMD). Try to wrap this one around your finger. For the last 3 months, the average volume of shares trading¬†had been about¬†25,000.¬†Today, May 16, 2011, it is north of 1,000,000. The fund’s net assets were a paltry $1.25M on 3/31. According to “Market Data” at WSJ.com, $55.7M entered CMD today.

At least in the short-term, commodity bears are looking to make a killing.  ProShares Ultra-Short DJ UBS Commodity (CMD) seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse of the daily performance of the Dow Jones-UBS Commodity Index.

3. ProShares UltraShort Euro (EUO). With a rapid rise in net assets as well as share trading volume, there’s a perception that the Euro may be incredibly overvalued compared to the greenback.¬†EUO seeks daily investment results, before fees and expenses, that correspond to twice¬†the¬†opposite of the daily performance of the U.S. Dollar price of the Euro.

Indeed,¬†European sovereign debt troubles have been hanging like¬†an albatross over the¬†EMU’s currency. That said,¬†the U.S. is facing its own version of sovereign debt woes. What’s more, Europe is addressing its PIIGS problems with austerity programs today, as well as tightening credit to ward off inflation. The U.S. isn’t.¬†It follows that there’s a perception that the Euro has run-up too far against the greenback, yet the reality may or may not be more weakness for the buck in the near-term.

You can listen to the¬†ETF Expert Radio¬†Show¬†‚ÄúLIVE‚ÄĚ,¬†via podcast or on your iPod.¬†You can review more ETF Expert features here.

Disclosure Statement: ETF Expert¬†is a web log (‚ÄĚblog‚ÄĚ) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

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