ProShares Plans Share Splits on Leveraged and Inverse ETFs
May 29th 2013 at 11:28am by Tom Lydon
Additionally, ProShares will perform a reverse split on eight ETFs effective June 10.
- ProShares UltraShort DJ-UBS Natural Gas (NYSEArca: KOLD): 1-for-4
- ProShares VIX Short-Term Futures ETF (NYSEArca: VIXY): 1-for-5
- ProShares Ultra VIX Short-Term Futures ETF (NYSEArca: UVXY): 1-for-10
- ProShares UltraShort Oil & Gas (NYSEArca: DUG): 1-for-4
- ProShares UltraPro Short Financials (NYSEArca: FINZ): 1-for-4
- ProShares UltraPro Short 20+ Year Treasury (NYSEArca: TTT): 1-for-4
- ProShares UltraShort Russell1000 Value (NYSEArca: SJF): 1-for-4
- ProShares UltraShort MSCI EAFE (NYSEArca: EFU): 1-for-4
If the splits create shares that are not an exact multiple of the split ratio, the fractional shares will be redeemed for cash, which may cause some investors to realize a gain or loss.
Leveraged long strategies have been a popular draw, especially during the bull rally as the broader market break historical highs. On the other hand, the rally has caused leveraged inverse strategies to suffer higher losses.
Leveraged ETFs try to magnify the daily movements of an underlying asset or index through a double- or triple-multiplier by using derivatives or futures contracts designed to earn a multiple of the return for a given Index. Inverse ETFs also use derivatives in an attempt to achieve a negative, or inverse, multiplier to the direction of the underlying asset or index. [Leveraged and Inverse ETFs]
Traders should know that inverse and leveraged products are not suitable for long-term buy-and-hold investors as the compounding affects from the daily rebalances would create divergences from the ETF’s performance to that of the underlying index, especially over periods of high volatility.
For more information on the ETF industry, visit our current affairs 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.