The Wall Street Journal reports ProShares exchange traded funds (ETFs) were handed capital gains distributions last week. Ian Salisbury wrote the distributions ranged from $3.80 per share to $6.80 a share on fund holdings. This is a shock to investors who use ETFs for their tax efficiency and low-cost structure.

The reason for this surprise has to do with the funds’ goal of doubling their benchmarks instead of just aiming to match their targets.  ProShares uses different methods that have other tax characteristics such as swaps and futures contracts.

The dates of the distributions were scheduled ahead of time without the amounts. Insiders say this is the price of using leveraged funds, which can result in higher returns than the traditional index. The ProShares funds are targeted for sophisticated traders and hedge funds.

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.