ProShares offers a wide variety of interesting Exchange Trade Funds ("ETFs") that may be suitable to some inventors. The investment company applies financial leverage to implement trading strategies that would be prohibitively difficult for most small investors to replicate. The company’s most interesting offerings are its Short ProShares and Ultra ProShares ETFs.
The Short ProShares ETFs track the inverse of certain indices. ProShares offers Short ETFs that track the inverse of indices such as the Nasdaq 100, the Dow Jones Industrial index (i.e., the Dow 30 index), the S&P 500 index, the S&P 400 MidCap index, and the Russell 2000 index. The ProShares ETFs hold financial instruments such as futures contracts, options, and swap agreements to track the inverse of the respective indices.
The Ultra ProShares are designed to return twice the daily performance of the respective indices being tracked. Some of the more popular Ultra ProShares ETFs include ones that track twice the performance of the Nasdaq 100, the Dow 30 index, the S&P 500 index, the S&P 400 MidCap index, and the Russell 2000 index. The Ultra ProShares ETFs also hold a variety of financial instruments in an effort to achieve their intended strategies.
ProShares also offers UltraShort ETFs that track twice the inverse of select indices, such as the Nasdaq 100, the Dow 30 index, the S&P 500 Index, the S&P 400 MidCap Index, and the Russell 2000 index.
The ProShares ETFs are not for the faint of heart, as they are extremely volatile. However, they are suitable for more experienced investors who wish to make plays on movements of certain indices, such as the S&P 500 index.
Although investors can ordinarily sell short ETFs or purchase or sell futures contracts to profit on the fall in price of indices, the ProShares ETFs offer some advantages. For example, a typical investor selling short an ETF would be subject to potential margin calls and potentially unlimited losses in the event that the ETF that was sold short rapidly increases in value. By purchasing a Short ProShares ETF, on the other hand, the same investor would not be subject to margin calls and the potential losses would be limited to the investor's purchase price of the Short ProShares ETF.
I personally like some of the Ultra ProShares ETFs, such as the Ultra MidCap 400 ETF. The long-term annual returns of MidCap stocks are somewhere around 11-12%, and the Ultra MidCap 400 ETF should exceed those returns over time.
It should be appreciated that due to transaction costs (e.g., the cost of purchasing the futures contracts and options, as well as the cost of running and advertising the various ETFs), it is not possible to return exactly the inverse of an index or twice the return of the index. Moreover, the Ultra ProShares ETFs, for example, are designed to return twice the daily return of a tracked index, as opposed to twice the annual return. Accordingly, in flat markets the Ultra ProShares ETFs may substantially trail double the returns of the tracked index over extended periods of time, although the returns are much closer to that of twice the tracked index during volatile markets.