Leveraged ETFs and Reverse Share Splits
October 13th 2011 at 8:03am by Tom Lydon
As markets continue to experience sharp swings amid heightened volatility and uncertainty, leveraged exchange traded funds are undergoing reverse splits in an attempt to beef up share prices.
ETFs, unlike regular company stocks, are funds and managers may change a fund’s price depending on the current market environment, writes Selena Maranjian for The Motley Fool.
“[S]ome technical issues in how ETFs work could result in low-priced volatile funds sometimes trading at a net asset value that is different from its actual share price; that’s an invitation for traders trying to game the system,” Chuck Jaffe for MarketWatch previously commented. “Low share prices also allow the smallest fast-money traders to get in and out with very little skin in the game.”
Direxion recently announced reverse share splits for a half-dozen leveraged ETFs.
Leveraged products may see their values slowly pushed lower over time. As a result, the fund company may implement a reverse split to bring up share prices. [Direxion Announces Reverse Split of Six ETFs]
According to a ProShares press release, three of its ETFs will undergo a reverse share split. It should be noted that the reverse split will not change the value of the shareholder’s investment.
ProShares will execute a 1-for-3 reverse split on the following:
- ProShares UltraShort Real Estate ETF (NYSEArca: SRS)
- ProShares UltraShort Utilities ETF (NYSEArca: SDP)
- ProShares UltraShort Yen ETF (NYSEArca: YCS)
The reverse splits were applied at market close on Oct. 12 and the funds will reflect their post-split prices on Oct. 13.
For more information on leveraged funds, visit our leveraged ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.