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Portfolio123 » List all forums » Forum: General Comments » Thread: Proshares ETFs |
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Total posts in this thread: 12
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Stittsville123
Advanced Member
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I just discovered some ETFs that I wasn't aware of before: UltraShort Russell2000 Growth (SKK) UltraShort Russell2000 Value (SJH) UltraShort Russell2000 (TWM) Ultra Russell2000 (UWM) Ultra Russell2000 Value (UVT) Ultra Russell2000 Growth (UKK) Ultra means 2x leverage within the ETF. Does anyone know which of the UltraShorts I should use for hedging P123 fundamental smallcap ports? Would the UVT (Value) or TWM be best? Steve P.S. They have also introduced a set of Ultra sector ETFs. |
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mrm
Advanced Member
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I'm using TWM becuase has good liquidity .SKK and SJH are not liqiud enough yet |
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bl82
Advanced Member UNITED STATES Joined: Apr 18, 2004 Posts: 97 Status: Offline |
Great ETF screener Some other excellent souces of ETF info: ETF Trends ETF Central IndexUniverse Random Roger Also, Yahoo's ETF site is surprisingly good and one thing you should definitely check out is a sort by volume ---------------------------------------- http://vixandmore.blogspot.com/ "Your one stop VIX-centric view of the universe..." ---------------------------------------- [Edit 1 times, last edit by bl82 at Jun 17, 2007 11:12:43 PM] |
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olikea
Advanced Member
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Just curious.... How does this leverage work? Is it like straight leverage (loan) that is continously traded, or is it some sort of deep in the money option? |
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Stittsville123
Advanced Member
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They mention in the prospectus that a combination of instruments are used to simulate the 2x leverage, but primarily derivatives. This could be either options or futures... I am interested in designing fully hedged sector ports but I have no experience in this area. Should I use 2/3 P123 sector port, 1/3 ultrashort sector ETF to be fully hedged? What are some of the pitfalls of such a hedge system? Steve |
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olikea
Advanced Member
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The reason I ask is that 2x leverage may not be as "simple" as it first sounds.... I.e. you may think 2x means it multiplies the underlying movements by a factor of 2, but while this is true for infinitessimal movements, it isn't for larger ones. Presumably, in order for the leverage to remain constant, it has to be continously traded. Therefore, if the market, say, goes up, more leverage has to be applied in order to maintaiin the 2x multiple. This means that for big upmoves the effect is amplified, so you actually get a result that is more than 2x. Unfortunately there is a downside, the so called "volatility gremlins". It is the fact that the geometric return is always less than the aritmetic return, and this is amplified when using leverage. It results because when the market ticks down, positions have to be sold to remain at 2x, and then when it ticks up, they have to be bought. If the market is range bound for a while this trading strategy distinctly loses money. It is difficult to know in advance what the effect of leverage is going to be. Its a shame we can't backtest this. Starting with 1x, if you apply more leverage, then for sure you get higher returns, but only up until a point where the volatility gremlins cause returns to peak, and ultimately decline and even go negative! Anyway I am just a bit weary of these products for this reason, I don't know where the "optimal" leverage point is. Its a bit similar to the kelly optimal bet size, bet too much, and you have crossed the line between "agressive" betting and "insane" betting! |
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DennyHalwes
Advanced Member UNITED STATES Joined: Apr 28, 2004 Posts: 1532 Status: Offline |
All, The Profunds Russell 2000 long and short ETFs have not been in existence long enough (since January 2007) to draw any conclusions about their ability to match their objective for 2X the Russell 2000. However, Profunds has a mutual fund (UAPIX) that tries to emulate 2X the Russell 2000 that has been in existence since 02/07/2000. I have traded it off and on many times over the years so I have some experience with Profunds and their ability to double a benchmark. Between the market high in March of 2000 and the low in October 2002 the Russell 2000 lost 41% and the Profunds UAPIX lost 78.9%, a little less than 2X. Between the low in October 2002 and yesterday the Russell 2000 gained 166.7% and the Profunds UAPIX gained 384.5%, a factor of 2.3X. So Profunds has performed a little better that its objective for its long fund. Profunds also has a short or inverse Russell 2000 fund (UCPIX) that tries to achieve 2X the inverse of the Russell 2000. This fund was started on 01/30/2004. Since that time the Russell 2000 has increased 18.1%, and the Profunds UCPIX has lost 25.78%, a factor of 1.42X. So Profunds has performed significantly worse than its objective for its short fund. The Manager of the Russell 2000 ETFs is the same as the Manager for their Russell 2000 mutual funds. So I would expect the ETFs to perform similar to the mutual funds. If you plot the long mutual fund with the long ETF Since January 2007, and plot the short mutual fund with the short ETF they almost exactly overlay each other. See this chart: Denny  ---------------------------------------- "The significant problems we face cannot be solved at the same level of thinking that we were at when we created them". Albert Einstein |
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Stittsville123
Advanced Member
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Good stuff Denny! It gives me something to chew on. |
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hmorris48
Advanced Member UNITED STATES Joined: Feb 24, 2007 Posts: 76 Status: Offline |
Interesting review of Proshares ETFs: http://biz.yahoo.com/ifunds/070620/20070620_leverageetf_com_etf_jb.html?.v=1 "The chart shows the danger of investing in SSO at the wrong time: the market sell-off in late February took the SPY down 5%, and SSO not double but actually triple that amount, nearly 15%." -herb ---------------------------------------- The holy grail of trading system design is a perfectly smooth equity curve. Beyond Technical Analysis |
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ginger
Advanced Member
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In my newsletter I have had excellent results with use of the ProShares magnified (2X) inverse ETFs when the market turns agains us. I use P123 and other systems to generate the portfolios, but when the market goes into a correction - or when the market goes into an inevitable bear market mode - the ProShares ETFs allow my subscribers to make money in down markets as well as up. I have been unable to date to create buy/sell rules that effectively time the market (and it may be impossible), but using manual determinations, the ProShares inverse (short) ETFs have satisfied most every subscriber. I use the TWM or QID for small-caps, MZZ for mid-caps and recently I have used the inverse sector ETFs to short the housing and financial markets. The biggest benefit is that the equities can be bought just like a long stock, no requirements for a leverage account with your broker. Many subscribers also tell me they use the inverse ETFs in their 401k and Roth IRAs, but you should check with your accountant first. ---------------------------------------- [Edit 1 times, last edit by ginger at Aug 4, 2007 1:10:59 PM] |
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Re: Proshares ETFs
