As ETFs Have Evolved, So Have Investors

Exchange traded funds (ETFs) are such phenomenal investing tools they are actually changing the way investors invest.

They've come a long way since they first landed on the scene in 1993. Billy Fisher for The Street highlights some major advances arising from the advent of the ETF.

• Betting on the bears: ETFs make it much easier to take a bearish stance and hedge against downside risk. ProShares Short S&P 500 (SH) delivers performance that is the opposite of the index it tracks. Investors no longer have to buy puts or sell short. The high risk is also offset. Rydex also offers a line of inverse funds, including the Rydex Inverse 2x Russell 2000 (RRZ).

• Active management: Actively managed ETFs have finally gained approval from the Securities and Exchange Commission (SEC) and are now awaiting investor approval. PowerShares recently launched ETFs coupled with the skill of an active manager and the diversification of an ETF. PowerShares Active Low Duration Fund (PLK) or the PowerShares Active Alpha Multi-Cap Fund(PQZ) are a few examples of the ones available. XShares and State Street are also planning to launch products of this type.

• Access granted: Areas of the market individual investors once found hard to access, such as commodities or preferred equities, are now available. iShares S&P US Preferred Stock Index (PFF) and the PowerShares Financial Preferred Fund (PGF) have shown strong interest.

• Plays on the dollar: The weakening U.S. dollar has been the topic du jour, and now investors can put their money where their mouth is and invest in currency. PowerShares DB U.S. Dollar Index Bullish (UUP) is a favorite among some analysts.

Read the disclosure, as Tom Lydon is a board member of Rydex Funds.

Morgan Stanley's New ETNs Go Long Or Short On The Euro

 

Morgan Stanley has joined the exchange traded note (ETN) game, with the announcement of two new notes, based on the euro. They're both now trading on the NYSE Arca.

The new notes are:

• Market Vectors Double Short Euro (DRR)
• Market Vectors Double Long  Euro (URR) 

These notes seek to provide leveraged directional market exposure to the euro and U.S. dollar exchange rate. At the same time, this is Morgan Stanley's first crack at the leveraged index world.

URR is aimed at providing two-times leveraged, long investment in the euro. For every 1% strengthening of the euro relative to the U.S. dollar, the level of the Index will generally
increase by 2%, while for every 1% weakening of the euro relative to the U.S.
dollar, the index will generally decrease by 2%.

DRR is designed to two-times leveraged short investment in the euro. For every 1% weakening of the euro relative to the U.S. dollar, the level of the index will generally increase by 2%, while for every 1% strengthening of the euro relative to the U.S. dollar, the index will generally decrease by 2%.

Today, the dollar has declined against most major currencies, reports Madlen Read for the Associated Press.

Investors Might Take a Shine to New Platinum ETNs

Investors have been salivating for an exchange traded product that gives access to platinum, and now UBS is granting it with two new exchange traded notes (ETNs).

The E-TRACS UBS Long Platinum (PTM) and the E-TRACS UBS Short Platinum (PTD) will be listed on the New York Stock Exchange.

Barclay's sought to launch a platinum exchange traded fund (ETF) awhile back, but the platinum industry voiced opposition, reports Heather Bell for Index Universe.

The new ETNs get around this concern by likely being based on futures contracts, which are typically settled in cash. The supply and demand of platinum wouldn't be immediately affected.

Until now, the only way to get exposure to platinum in the United States was through the Elements MLCX Precious Metals Index (PMY), which follows a benchmark of precious metals that includes platinum.

Platinum closed at $1961 an ounce yesterday, and is trading higher today.

It's Anybody's Guess Which Way Oil Will Go and Which ETFs Will Benefit

If you believe oil is in an increasingly fragile bubble that's fixin' to burst, there is an exchange traded funds (ETFs) out there for you.

On Wednesday, oil nearly hit a record $124 a barrel, reports Madlen Read for the Associated Press. Just when it seems the prices couldn't possibly go any higher, there they go. Goldman Sachs earlier this week predicted that oil could even hit $200 a barrel, and that we're in the midst of a "super spike" in prices.

Midday today, oil slipped to $122.55 a barrel.

This is where it gets dicey. Do you agree with Goldman Sachs, or do you believe that the exuberance is at or approaching the level of absolute insanity?

If it's the latter, ProShares has an UltraShort Oil & Gas Fund (DUG). Zoe Van Schyndel for Morningstar says you don't even have to worry about the timing of energy prices, as you can hold the ETF indefinitely.

There are risks involved with short funds, of course. Since oil prices are notoriously volatile, making some of their most rapid movements based on rumors and speculation in addition to the usual factors of supply and demand, these ETFs can swing wildly in one direction to the next. And the effect of high oil prices on the companies isn't always predictable.

Year-to-date, DUG is down 15.9%.

Naturally, if you think that energy is going to continue on the bull run, there are some other options for you, too, including:

• United States Oil (USO), up 31.7% year-to-date
• United States Gasoline (UGA), up 16.4% since Feb. 28 inception
• PowerShares DB Oil Fund (DBO), up 32.3% year-to-date

ProShares Wins The Race To Market With Inverse Bond Fund

ProShares wins the race to be the first inverse bond exchange traded fund (ETF) in the world. Deutsche Bank was hot on their heels, after announcing plans a day earlier to issue a new ETF in Europe that short Eurobonds, says Murray Coleman for Index Universe.

The two new ETFs to hit American markets are:

• ProShares UltraShort Lehman 7-10 Year Treasury (PST)
• ProShares UltraShort Lehman 20+ Year Treasury (TBT)

Both ETFs are set up to measure the inverse of their daily performance of their underlying index. Remember, with a bond fund, the interest earned on cash and financial instruments figures into the overall performance results. Many investors are looking to ProShares' inverse bond ETFs to neutralize market valuations and as portfolio protection against price fluctuations.

One advantage of a fund that automatically shorts an index is that investors can only lose what they put in. By taking short positions in long ETFs, the losses can go unchecked.

To learn more about long/short ETFs, check out our interview with ProFunds' CEO Michael Sapir.

Is Three Times Performance Going to Be a Charm for New ETFs?

A firm better known for its leveraged index mutual funds has filed for 36 exchange traded funds (ETFs) with the Securities and Exchange Commission (SEC) that raise the stakes.

The ETFs from Direxion Funds would deliver three times the performance (or three times the inverse) of their underlying indexes. This is a new twist, since no ETF currently offers anything more than double the exposure, leveraged or short.

The funds will cover a variety of asset classes that include sectors, international regions, real estate and even commodities, reports Heather Bell for Index Universe. The prospectus says the management fees for the funds will be 0.75%.

ProShares and Rydex have no doubt proved that some investors want leveraged and short ETFs, but is this going too far with the concept? For financial advisors and retail investors, double exposure might be plenty. We're concerned that this might be a case of too much octane.

Are ETFs going to be like those razors that hit the market with one more blade every time a new one comes out? Investors should be careful - too many blades, and you're likely to get cut.

Read the disclosure, as Tom Lydon is a board member of Rydex Funds.

Oil Down ETF Moves Up On Oil Price's Slide

As oil prices head south, one exchange traded fund (ETF) shot way up.

MACROshares Oil Down (DCR) closed up 10.6% in trading today after oil speculators pulled out of the market. Crude settled at $112.52, stripped of its appeal to investors as the dollar gained strength, says John Wilen for the Associated Press. Oil is sitting at its lowest level since April 14, but analysts caution that it could be temporary.

Meanwhile, the MACROshares continue to trade as they normally would after hitting a termination trigger on April 16. Sam Masucci, MacroShares' CEO, says both Oil Down and MACROshares Oil Up (UCR) will trade as though they normally would.

On June 25, they'll cease trading. On July 3, shareholders of the funds will receive payouts based on the fund's net asset value (NAV) on that day. The funds are raking in assets, says Masucci, pulling in $120 million this week.

The company has filed with the Securities & Exchange Commission (SEC) for its second set of up/down oil ETFs. The hope is that they'll get the go-ahead before the first set of funds terminate.

Four New ETNs Hit The Market, Thanks to Deutsche Bank

Deutsche Bank launched four new exchange traded notes (ETNs) with a twist, coming out ahead of rivals such as ProShares.

The new broad-based ETNs focus on agriculture and commodities, but come in long, double-long, short and double-short varieties, rounding out a complete set for a commodities index, reports Murray Coleman for Index Universe.

The new notes are tied to the Deutsche Bank Liquid Commodity Index and the Deutsche Bank Liquid Commodity Index-Optimum Yield.

• DB Commodity Double-Short (DEE)
• DB Commodity Double-Long (DYY)
• DB Commodity Short (DDP)
• DB Commodity Long (DPU)

The securities will be issued in $25 denominations. As their name implies, these new funds give investors long and short exposure to the agriculture and commodities sector. All four notes are senior unsecured obligations of Deutsche Bank.

These notes join Deutsche Bank's launch of ETNs allowing investors to go long or short on gold and agriculture.

The newest additions to the ETN family add to the growing list of launches for 2008.

The Long and Short of Long and Short ETFs

Everyone knows about short and leveraged exchange traded funds (ETFs), but some might be wondering "How do they do that?"

Michael Sapir, CEO of ProFunds, gave us a call and explained it. "The best way to understand how a [short or leveraged] fund works is to compare how an S&P fund works."

Menu of Agriculture ETFs and ETNs Expands

Some crops might not be growing, but lots of agriculture-focused exchange traded funds (ETFs) and exchange traded notes (ETNs) are sprouting up.

Deutsche Bank launched a smörgåsbord of ETNs this week, just in time for the agriculture craze.

These new products maximize the potential returns an investor can realize in the agriculture marketplace. Deutsche Bank's line of ETNs are designed as leveraged plays on the PowerShares DB Agriculture (DBA) ETF, reports Trang Ho for Investor's Business Daily:

• DB Agriculture Double Short (AGA)
• DB Agriculture Double Long (DAG)
• DB Agriculture Short (ADZ)
• DB Agriculture Long (AGF)

DBA is up 19.9% year-to-date.

There's also the MLCX Livestock Elements ETN (LSO), which tracks futures in lean hogs (30%) and live cattle (70%). Lehman Brothers stepped into the arena in February with the Opta Lehman Brothers Commodity Index Pure Beta Agriculture Total Return ETN (EOH), which gives exposure to coffee, cotton and sugar.

Hungry for more? There are also a number of other agriculture-centric ETFs and ETNs on the menu. Among them:

• Market Vectors Global Agribusiness (MOO), up 11.1% year-to-date
• MLCX Grains Index ETN (GRU), up 1.3% since Feb. 15 inception
• iPath Dow Jones AIG-Agriculture ETN (JJA), up 12.2% year-to-date
• E-TRACS UBS Bloomberg CMCI Food Index ETN (FUD), up 5.1% since April 4 inception

Feeling Bearish or Bullish? There's An ETF For Every Mood

Last week's stock surge has caused a pullback for some of the leveraged and inverse exchange traded funds (ETFs), the same funds that were earning traders so much money.

David Penn for Trading Markets explains that one of the biggest benefits of a leveraged ETF is that traders do not have to use a margin and still get a 2-for-1 bang for their buck.

Another benefit of a leveraged ETF is that traders can bet against a market without having to sell stocks or ETFs short. Inverse ETF trading is much more simple than taking a bearish position on a sector.

ProShares and Rydex are the primary providers of an extensive line of short and leveraged ETFs.

Take a look at these long/short ETFs that are appearing on investors' radar:

• ProShares UltraShort S&P 500 Fund (SDS)
• ProShares UltraShort QQQ Fund (QID)
• ProShares UltraCap Mid-Cap 400 Fund (MZZ)
• Rydex Inverse 2x S&P 500 (RSW)
• ProShares Ultra S&P (SSO)
• Rydex Inverse 2x Russell 2000 (RRZ)

Read the disclosure, as Tom Lydon is a board member of Rydex Funds.

Plop-Plop, Fizz-Fizz - Can You Handle Short and Leveraged ETFs?

Exchange traded funds (ETFs) that use leverage and short-selling have the ability to reward investors with high profits, but they can also hit them hard with big losses.

They are meant for investors with a full awareness of the risks and a strong stomach, because they're going to need them as the market roller coasters. If you're trading them in the short-term, they can amplify gains when they're performing the way you hope they will.

Typically, short-selling funds are for bearish investors, or types who want to hedge an existing position against losses, since they profit when the market falls, reports Dow Jones Newswires. Leveraged ETFs amplify daily index moves.

A widely traded ETF such as Financial Select Sector SPDR (XLF) gained 7% on April 1 , the first day the sector rebounded. Leveraged ProShares Ultra Financials (UYG) seeks daily returns that give twice, or 200%, the daily performance of the Dow Jones Financials Index, gaining 12.7% in one rally. But on the flip side, the UltraShort ProShares Financial (SKF) lost 13.5% that day.

Break out the antacids.

Among the other short and leveraged ETFs:

• ProShares UltraShort MSCI Emerging Markets (EEV), down 0.9% year-to-date
• Rydex Inverse 2x S&P 500 (RSW), up 10.6% year-to-date
• UltraShort Russell 2000 ProShares (TWM), up 9% year-to-date
• UltraShort Dow 30 (DXD), up 7.3% year-to-date

Read the disclosure, as Tom Lydon is a board member of Rydex Funds.

Leveraged and Short Telecom ETFs Can Maximize Exposure On Both Sides

Year-to-date, the iShares Dow Jones US Telecom (IYZ) and the iShares S&P Global Telecommunications (IXP) exchange traded funds (ETFs) are down 20.8% and 13.7%, respectively. So, it's probably a good time for the new ProShares UltraShort Telecommunications (TLL).

Launched alongside the ultrashort is the ProShares Ultra Telecommunications (LTL), designed to deliver twice the performance of the index. In other words, when the index rises by 1%, the ETF would rise by 2%. Keep in mind, this holds true for the flip side of the equation.

The telecommunications sector is dynamic and volatile at times, but rapidly changing technologies, and the quick spread of wireless communication, along with consumer and internet entertainment, are attracting investment in this sector.

The new ETFs are listed, but trading has not started, according to Trading Markets.

Short and leveraged ETFs can be used in a variety of ways, including:

• Continuing to profit, even in a sector downturn
• To get more bang for your investment buck
• To execute sector rotation strategies
• To easily adjust overall portfolio exposure

As with anything else, caution should be exercised with these types of funds. This magnified potential for gains can just as easily turn and magnify your potential for loss.

As Gold Price Dips, Short ETNs Let Skeptics Capitalize

 

Commodity prices corrected after a lengthy rally driven by the Federal Reserve interest rate cuts, sending exchange traded notes (ETNs) that short gold up 7% in two days. DB Gold Double Short ETN (DZZ) gained 7% as of last Tuesday and Wednesday, as the shift in precious metals, oil and wheat occurred.

John Spence for MarketWatch reports that gold prices fell after the Federal Reserve cut interest rates again on Tuesday, by three-quarters of a percent to their lowest level since 2004.

What's in store for this week? We're in volatile times, and anything goes. Gold exchange traded funds (ETFs), such as streetTRACKS Gold Shares (GLD) and iShares COMEX Gold Trust (IAU), are up slightly so far today.

Chinese ETFs - Yin Yang For The Market

The China bubble is continuing to correct itself if its exchange traded funds (ETFs) are any indication. With the Olympics just around the corner, many felt that the growing country's performance would stay solid through the summer.

But the iShares FTSE/Xinhua China 25 Index (FXI) is down 25.7% year-to-date, the PowerShares Golden Dragon Halter USX China (PGJ) is down 31.9% year-to date and the SPDR S&P China (GXC) is down 29.3% this year.

The Tibetan Youth Congress is seeking independence from China, reports Peter Wonacott for the Wall Street Journal, which has given rise to protests throughout the region. They've staged a march to Tibet, supported hunger strikes and are now calling for an Olympics boycott.

On the flip side, the ProShares Ultrashort FTSE/Xinhua China 25 Index (FXP)  reached a new high on Thursday before retreating on Friday.

In the short term, no bottom for the market is in sight, if past indicators are to be believed. In the short term, the China funds may show rallies, but wait until they officially head back above their trend lines.

Rydex Puts ETFs to Work In a New Mutual Fund

Rydex is proving that it's possible for mutual funds to be creative in how they use exchange traded funds (ETFs).

The provider is launching a new long-short index mutual fund that takes a fund-of-funds approach, says  Murray Coleman of Index Universe. The idea will be to invest in alternative benchmarks, and the fund will allocate its assets to five strategies in five segments using ETFs or mutual funds.

The fund takes a fresh approach using the following allocations, in order of total assets:

• The Rydex Managed Futures Strategy Fund (RYMFX)
• PowerShares DB G10 Currency Harvest (DBV)
• The Rydex Commodities Strategies Fund (RYMEX)
• The Rydex Real Estate Fund (RYREX)
• The Rydex Alternative Strategies Allocation Fund (RYFOX)

The fund rebalances monthly, but can do so more often. The annual expense ratio is 1.75%, and no fund of fund fees are charged.

Read the disclosure, as Tom Lydon is a board member of Rydex Funds.

Sign of the Times: UltraShort QQQ ETF Is Top Fund So Far This Year

One sign of the turbulence in our markets: the top performing fund year-to-date is an ultra short.

The ProShares UltraShort QQQ (QID), which holds some of the biggest stocks in the Nasdaq 100, is up 48%, reports David Penn for Trading Markets.

Inverse funds such as these are designed to move in the opposite direction of its underlying index. In the case of QID, the "UltraShort" label means it delivers twice the opposite. These days, when the market seems to be heading down more than it's moving up, short ETFs are popular with investors who want to keep earning, regardless of conditions.

Owning these funds comes with a special set of caveats, however. The market's strong day yesterday is a case in point - if you owned a double short fund, you probably took a bit of a hit.

David Kathman for Morningstar suggests avoiding these risky funds. Many investors are going to do what they want, though, so we suggest that you be aware of exactly what you're getting into and know when to step away.

Leveraged ETFs Can Help You Keep Earning, But Don't Come Up Short

Investors are increasingly less content do just sit there holding cash while the market tumbles, giving short exchange traded funds (ETFs) a measure of popularity. The trend has been especially popular this year as each week seems to bring only more bad news. There's no telling when things will turn around, say investors, so why not turn lemons into lemonade?

ProShares is a leading provider of the short fun. The firm has seen more than $4 billion flow into its offerings this year, one of the largest tallies in the industry, reports Rob Wherry of Smart Money.

As the next few weeks are anticipated to be rough ones for Wall Street, some investors are taking advantage of these vehicles to keep their balances from shrinking. While many want to try and take advantage of these funds for the current market conditions, use them with caution. The risks when there's a turnaround are great.

A few of the short ETFs available are:

• ProShares UltraShort S&P 500 (SDS): up 22% this year. This strategy can help offset risk, keep taxes to a minimum, and protect principal.
• MacroShares Oil Up (UCR): up 55%; may be used as a tax hedge.
• ProShares Short QQQ (PSQ): up 18.8% year-to-date; posts the inverse return on the Nasdaq's 100 largest non-financial stocks.

Bear Stearns' Collapse Is Felt Throughout Market and ETFs

The Bear Stearns (BSC) implosion is causing shock waves throughout Wall Street, global markets and exchange traded funds (ETFs).

While Bear's stock sank 86% in intraday traded, financial and broker-dealer ETFs took hits, too:

• iShares Dow Jones US Financial Services (IYG): down 3% intraday, down 18.2% year-to-date
• Financial Select Sector SPDR (XLF): down 3.6% intraday, down 17% year-to-date
• iShares Dow Jones US Broker-Dealers (IAI): down 12.8% intraday, down 26.2% year-to-date, Bear Stearns is 4.1% of assets

While Bear Stearns isn't a holding of IYG or XLF, the swift collapse of what was once one of the world's largest investment banks is spreading fear through the financials as Wall Street and investors wonder who is next.

What happened with Bear Stearns depends on whom you believe. CEO Alan Schwartz blamed rumors, write Liz Moyer and Mitchell Martin for Forbes. The company had spent several days last week trying to calm the markets by saying its liquidity and cash positions were fine. By Friday, that was no longer the case and JP Morgan (JPM) stepped into bail them out.

This weekend, JP Morgan bought Bear Stears at $2 a share, for $236.2 million, reports Jeannine Aversa for the Associated Press.

The looming question on investors' minds is whether Bear Stearns is just the first of many banks to fall. The Federal Reserve, for its part, is doing all it can to head off a total meltdown. It's positioned itself as a lender of last resort for Wall Street investment houses, and cut its emergency lending rate by 0.25%, to 3.25%.

One financial ETF reaping the rewards of this tumble is the ProShares UltraShort Financials  (SKF), which was up 7.5% in intraday trading. Year-to-date, it's up 32.3%.

February Was a Strong Month for Natural Resource ETFs

February turned out to be the month of energy and natural resources exchange traded funds (ETFs), beating out the juggernaut that is precious metals.

Richard Widows for The Street says funds that included an international focus took five of the next nine spots, while global income and emerging market equities took second and third place respectively.

Global equity managed a slightly negative total return for the month, but was still better than the average performance of -0.61% for all 652 ETFs tracked.

The best-performing fund for February was ProShares Ultra-Short Financials (SKF) up 22.64% taking an inverse position and leveraging the worst-performing financial services category. The sector continued to take a hit on recession fears.

iPath Dow Jones AIG Natural Gas Total Return (GAZ), iShares Silver Trust (SLV), iShares MSCI Taiwan (EWT) and Market Vectors Steel (SLX) all achieved returns in the double digits and led their respective categories.

Which ETFs Are On First Today?

After a big day for the markets, you can't help but wonder which exchange traded funds (ETFs) stood out head and shoulders above the rest.

If you scroll through ETF Screen's breakdown of fund performance, you'll see that most ETFs ended higher in trading today.

Coming out way ahead are:

• ProShares Ultra Short Financials (UYG), up 14.4%
• ProShares Ultra Real Estate (URE), up 12.6%
• ProShares Ultra Basic Materials (UYM), up 11.6%
• iShares FTSE NAREIT Mortgage REITs Index Fund (REM), up 10.7%
• Claymore/AlphaShares China Real Estate (TAO), up 10.3%
• iPath MSCI India ETN (INP), up 10.2%
• iShares FTSE-Xinhua China 25 Fund (FXI), up 9.6%

The Ultras didn't do anything special to come out on top today, but instead, they benefited from the big jump financial ETFs experienced today. They illustrate the potential to do that much better when the market is faring well - and today, they did.

Going Ultra Short With ETFs Can Protect In a Down Market

Trading volume has been exploding with short and ultra-short exchange traded funds (ETFs). With the state of the market, it's no surprise: many investors are investing short to ensure their long-term survival while they wait for the rocking ship that is the market to right itself once again.

While going short is risky, doing it with ETFs is safer and easier than doing it with individual stocks.

Richard Shinnick for Seeking Alpha recommends an ultra short basket of ETF focused on precious metals and international bonds. Take the UltraShort QQQ ProShares (QID) which takes a double-short position in the NASDAQ 100 index. Brett Steenbarger for Seeking Alpha calls it a sentiment gauge. Traders seem to become bearish just as markets are making an intermediate-term low.

Short positions in a portfolio are not meant for the long-term and it is important to pay attention when you invest in one of the short or ultra-short ETFs.

Short ETFs Can Help If Handled With Care

In a down market, short exchange traded funds (ETFs) gain popularity, but they need to be used with caution and education.

ProShares UltraShort QQQ (QID) is one of the more popular ETFs of this kind and it tracks the Nasdaq 100, while returning twice its inverse performance. The ETF has $1 billion in assets, and returned 38.8% year-to-date, but it is against a -5.1% return over the past year, says Jesse Emspak for Investor's Business Daily. It's benefited from the decline of the Nasdaq, which is 2.3% below its Jan. 22 low.

Among the strongest of performers is the ProShares UltraShort Semiconductor (SSG) which has given investors 39.5% year-to-date, with a one-year return of 10.4%. The semiconductor industry has been ailing so far this year.

Investors should consider two things when considering short ETFs:

1) Markets tend to go up over the long run, so shorting ETFs are not a long-term investment.

2) There is a strict limit on the gain any short can make. The value of the index should not go below zero.

UltraShorts can make a bad day in a particular sector - this morning's financials, for example - a good one for investors who hold short funds, says Will Swarts for Smart Money. ProShares says their Ultra funds family isn't targeted to the "mom and pop investors."

But for sophisticated investors, ProShares Chief Executive Michael Sapir says they can be a great way to capitalize.

Making sector calls can work, but just be sure you have your exit strategy in place before you get involved. We watch the 200-day moving average and put an 8% stop-loss on each ETF.

Deutsche Bank Launches Three Gold ETNs as Metal Hits Record Prices

Three more gold-focused products are hitting the marketplace - this time in the form of exchange traded notes (ETNs).

Deutsche Bank's new line of ETNs are linked to the Deutsche Bank Liquid Commodity Index - Optimum Yield Gold:

• DB Gold Double Short (DZZ): Offers exposure to two times the monthly inverse performance of the index, plus a monthly T-Bill index return.
• DB Gold Double Long (DGP): Offers two times the monthly performance of the index, plus a monthly T-Bill index reutrn.
• DB Gold Short (DGZ): Offers the monthly inverse performance of the gold index, plus a monthly T-Bill index return.

The lineup is the first to offer investors the opportunity to gain short or leveraged exposure to gold.

The precious metal has been in the news increasingly frequently, as it keeps hitting new heights. Today, futures rose to an all-time high of $970 an ounce, owing largely to the dollar's tumbling value, reports Polya Lesova at MarketWatch. The rising prices have kept the related exchange traded funds (ETFs) moving upward, as well:

• streetTRACKS GoldShares (GLD), up 15.1% year-to-date
• Market Vectors Gold Miners (GDX), up 15.9% year-to-date
• iShares COMEX Gold Trust (IAU), up 15.2% year-to-date

UltraShort S&P ETF Doubles Up in Downward Trend

Short exchange traded funds (ETFs) are meant to head up as the market heads south - something it seems to have been doing a lot of lately.

The ProShares UltraShort S&P 500 (SDS) and Rydex Inverse 2x S&P 500 ETF are (RSW) no exception, especially as they are designed to deliver twice the opposite performance of its underlying index. The S&P has had some upswings in the last several months, but overall, it's on a downward trend:

• In the last month, it's lost 1.7%
• Over three months, it's down 7.5%
• Year-to-date, it has lost 8.1%

Mike Paulenoff at MPTrader predicts that the SDS should climb some more, and he's using it to hedge a few long positions.

Although they are good options for investors looking to continue making gains while the market is on a downward trend, it's always wise to be aware of the risks involved when it comes to short ETFs. The potential to win big is there, but you could crash and burn, too, if caution isn't exercised. Always make sure they are right for your portfolio.

Read the disclosure, as Tom Lydon is a board member of Rydex Funds.

China's ETFs Are Irresistible; Here's How To Deal

China and its exchange traded funds (ETFs) might occasionally bring back memories of that dramatic high school relationship: volatile and full of high highs and low lows.

Just look at the 2007 performance of the iShares MSCI Xinhua/China 25 Index (FXI) vs. right now: it ended last year up 54.8%. So far this year, it's down 15.7% and is 35% off its high. The fund is still up 600% in five years, though.

Jim Jubak for MSN Finance says that China still comes with big risks. The economy is growing quickly - maybe too quickly. The money supply in the country is growing at a faster rate than the economy, a prime situation for inflation. Another risk, he says, comes about because China's economic and financial systems differ so much from our own. Accounting isn't easy.

The upside of the returns comes with a lot of risk but there are ways to cut down the risk as well as help investors find the source of the risk.

1. If you own Chinese securities, hedging some of you risk with a short ETF is a good idea. ProShares Ultrashort China (FXP) is a tool to help catch the downside. China's economic risk is extreme, with inflation and interest rates threatening to dampen the hot spell, but this way you'll have bases covered.
2. Stay aware of the risks. It can help give insight into when it may be time to bail.

Joanne Von Alroth for Investor's Business Daily says that some analysts feel that it might not be time to give up on China just yet. Many of China's woes have stemmed from a double whammy of a faltering U.S. economy and the most severe snowstorm the country has seen in 50 years. Factories shut down, transportation was halted and power was out for days.

Those analysts say to give China a break - it's not fair to judge a country's overall economy on the basis of temporary, short-term occurrences. Keep an eye on the country and watch how they deal with recovery from the weather disaster and how the U.S. economy continues to affect it.

Some ETFs Experience a Reversal of Fortune

  It isn't all doom and gloom: some exchange traded funds(ETFs) are experiencing a reversal of fortune during these trying economic times.

The performance for the past month of these lucky ETFs are listed:

• ProShares UltraShort FTSE/Xinhua China 25 (FXP), up 33.7% in the last month
• FocusShares ISE Homebuilders Index Fund (SAW) up 30.5% in the last month
• iShares Dow Jones US Home Construction (ITB) up 33.1% in the last month

All three are posting nice numbers after being down by varying degrees. FXP may be seeing the upside because of the idling economy in China. Because short ETFs deliver the inverse performance of an index (or in the case of an ultra short, twice the inverse), they won't deliver the kind of returns one is hoping for when an index is moving upward.

SAW and ITB are on an upswing possibly from the recent flurry of bargain hunters. In 2007, ITB ended the year down 57.8%, so positive numbers are a refreshing change of pace.

Long-term investors know that real estate will be on a rebound eventually, so they are ready to hang on for the ride. Many analysts feel that once the subprime crisis passes, the real estate ETFs will be ready for a turnaround.

Transportation ETF Flying High

The transportation exchange traded fund (ETF) is on a roll, as it was a leading issuer for the week. Dow Jones Transportation Average (IYT) issued $500 million or 74.8% of assets. Runners up were the UltraShort Financials ProShares (SKF) which issued $430 million, 28.9% of assets and the iShares Russell 1000 (IWB), which issued $264 million or 6.9% of assets. 

Charles Biderman for Forbes reports that U.S. equity ETFs redeemed $8.9 billion during the past week. Futures related ETFs redeemed $7.8 billion and non-futures related ETFs issued $614 million, while short ETFs issued $190 million.

Global equity ETFs issued $1.3 billion, while the leading issuer was iShares MSCI Emerging Markets (EEM) which issued $408 million. Other successes were iShares FTSE/Xinhua China 25 Index (FXI) at $218 million, and Vanguard Europe Pacific (VEA) which issued $91 million.

Long-Short Funds Prove Their Skills

Long-short exchange traded funds (ETFs) have outperformed any other fund analyzed by Morningstar so far this year.

Long-short funds combine traditional long or bullish bets with short or bearish ones that allow fund managers to profit even when the market falls, says Ian Salisbury for The Wall Street Journal.

The funds have delivered, as far as their promised performance amid all of the market turmoil. Nonetheless take these gains with a grain of salt. Known drawbacks to these types are short track records and mediocre returns when the market is doing fine, as it was in 2005-2006.

Bear market ETFs make up 20 of the top 25 spots on Morningstar's list, and the top performing ETF year-to-date is ProShares UltraShort Semiconductor (SSG). It's up 37.5%.

Chile ETF Warms Up This Week

One of the top-performing exchange traded funds (ETFs) over the last week might come as a surprise after all the talk about short ETFs amid market turmoil.

It's the iShares MSCI Chile (ECH), launched in November 2007, which is up 13.8% this week. It's a single-country fund that's diversified over several sectors, reports Gary Gordon for ETF Expert. Half of the fund resides in utilities and industrial stocks, while 17% is in materials and 13% is consumer-related.

It also gives exposure to copper, a valuable metal in times when emerging markets are thriving. Chile accounts for one-third of the world's metal production. The country also benefits from literacy levels that reside near 100%, a high level of domestic investment and savings rates, and nearly 45% of its GDP is linked to foreign trade.

More ETF Volatility Anticipated

Exchange traded fund (ETF) investors beware: there is more volatility looming on the downside as the carry trade and proprietary traders continue to unwind profitable trades.

Any current strength the market is experiencing is because of short covering and this is likely to become evident over the next two to four weeks, reports Pierre Daillie on Seeking Alpha. What is happening is institutions are still unwinding their profitable trades to make money, the market goes down, and short covering occurs with a bounce in the stock prices, that appears as a recovery.

The catch is that as long as the cash call remains higher than the outstanding short positions, the market will continue to trend lower. ProShares has a new breed of ETFs that help wary investors catch the downside and bet against the market. The short funds do not use leverage, but the ultra short funds do.

The TSX in Canada has the Horizons Beta-Pro which launched "double-short" ETFs and trade inversely with the market.

Shorting ETFs Without The Risk

Now that exchange traded funds (ETFs) have proliferated, investors have a lot of room to consider their options, one of which is short ETFs.

Most short sellers have found over the past 20 years that there is more opportunity to benefit from both long and short positions. David Fry, wealth manager and author of "Create Your Own Hedge Fund: A DIY Strategy For Private Wealth Management", for Seeking Alpha also thinks that since ETFs have expanded in scope to include major global indexes they have reduced many of the risks associated with earlier shorting techniques.

Shorting an index is less risky than shorting a stock, and although many indexes go up over the long term, there are some bear markets that can devastate traditional long-only portfolios. Protracted bear markets can last for years and it can take years for a portfolio to recover.

Shorting these days has become ever more popular, thanks to ongoing market turbulence that's generating decent returns in these funds. In fact, a quick glance at Morningstar's list of the top ETFs by market return is made up primarily of short funds. Evaluate shorting without emotion, exercise caution and be sure you know the risks. While ETFs have made shorting a less risky venture, there is still potential for big losses.

Tax Loss Harvesting With ETFs

In the current market conditions there is something worthwhile to try other than shorting stocks and exchange traded funds (ETFs).

Mitch Tuchman for Seeking Alpha reports that studies show big market moves happen quickly and over a couple of days, not over many years, which accounts for the gains that most markets reach. This makes timing the market, especially during volatility, foolish.

ETFs allow investors to pick up a little tax break during market downturns, such as in the current condition. By selling an ETF as a loss and buying a similar one that gives overall the same exposure, investors are allowed to take a tax deduction.

Before ETFs came along, this tax loss harvesting was virtually impossible. Just be sure that the ETF you purchase in place of the one you sell is similar enough to qualify.

Asian Stocks and ETFs Hear The Roar

The Asian indexes officially entered a bear market this week, taking the related exchange traded funds (ETFs) and stocks down.

A recent spread of short positions led to panic sell-offs, possibly because of hedge funds unloading on margin calls, reports Daniel M. Harrison for TheStreet.

The Hang Seng went through the biggest two-day decline since the 1997 Asian contagion, ending down 2061 points, or 8.7% at 21,757. China soon followed the island's movements, going down 354 points, or 7.2% at 4559.  Last Wednesday was the start of the Asian sell-off  when the Hang Seng fell 5.4% in one day, shedding a total of 17.8% in five days.

The sell-off is believed to be a result of short-selling by traders who saw a weakness in key technical support levels last week, and once prices fell below the 23,400 level, hedge funds covered margin calls, causing further declines. Telecom, financials and insurers all slipped to  lows.

Short ETFs Shining Bright

These days, it's all about the short exchange traded fund (ETFs). Scroll through the list of top-performing funds year-to-date on Morningstar and you'll see the proof: the top 33 performing funds so far this year are all variations on the short theme.

The top three among them are:

• UltraShort Semiconductor ProShares (SSG), up 51.6%
• MACROshares Oil Down Tradeable Shares (DCR), up 33.5%
• UltraShort Russell MidCap GR ProShares (SDK), up 31.3%

ETFGuide has noticed the trend, too.

How do these types of funds work? Shorts are inverse funds, designed to move in the opposite direction of their underlying indexes. Ultra short funds move in twice the opposite direction. With those, the potential for losses is magnified right alongside the potential for gains. They should be used with caution.

For these kinds of funds, however, the falling markets have translated into good news. And as the financial news isn't painting a rosy picture for the time being, investors are increasingly turning to these funds to hedge their losses.

Hedging the Tumbling Housing Market with ETFs

Very few exchange traded funds (ETFs) could get a lift from the housing report issued this morning.

Martin Crutsinger for the Associated Press reports that the housing slump has hit new lows. The Commerce Department reported this morning that construction was started on 1.353 million homes and apartments, a 24.8% drop from 2006. It was the second biggest annual decline on record. The biggest was a 26% drop in 1980.

A number of economists now believe that the housing slump is going to rival the drop in the late 1970s and early 1980s, when construction fell four straight years. But chin up: they also believe that after weakness this year, the housing market could begin a rebound in 2009.

If your house is hemorrhaging equity and you want to hedge that, one way to do so is with short housing ETFs, such as the UltraShort Real Estate ProShares (SRS), which might see decent performance numbers amid all this bad news.

Inverse ETFs Can Cover Investors on the Flip Side of the Markets

For many exchange traded funds (ETF) designed to go up when its underlying index goes up, you can often find a corresponding ETF designed to go up when the underlying index heads south.

They're known as "inverse" ETFs, and as David Gonzalez at Investopedia reports, they're just one more tool in the ETF workshop that help investors hedge risk and keep their portfolios afloat when the markets take a stumble. For example, if you felt that the S&P was going to go down, you would get the ProShares Short S&P 500 (SH). Likewise, you wouldn't want a short ETF in a sector that's heading upward.

Going a step further, there are some inverse ETFs that seek to double the performance of an index (a clue is if "ultra" appears in the name). These double ETFs either double the performance or move in twice the inverse direction of their benchmark.

Unlike regular long ETFs, the investment capital held in the legal trust underlying each inverse ETF generally is not invested directly in the securities of the index's constituents.

Most importantly, Gonzalez stresses the risks of inverse ETFs. The potential to lose and lose big is still there, so an investor should always make the most informed decision possible.

ETFs Caught in the Middle of Japan's Economic Forecast Tug-of-War

It looks like there's some disagreement about the future of Japan's economy and the exchange traded funds (ETFs) that track it. Yesterday, we wrote a post saying that Japan's economic council sees the economy ready to grow, but not everyone sees it that way.

The central bank's chief says the economy is actually slowing because of housing investment weakness and cautious corporate sentiment, the Associated Press reports, and as a result, kept interest rates unchanged. That, coupled with the risk of an economic slowdown in the U.S., makes for a gloomy forecast. The government also revised its forecast for real gross domestic product growth for the year ending March 2008 down to 1.3% (it had been predi