Update: Kansas, class act veteran journalist, writes in to acknowledge the mistaken description of the ProShares ETF.
Dave Kansas makes some good points in his WSJ article today on the latest batch of “specific, complex, risky” ETFs, but this is not among them:
Conversely, the ProShares UltraShort S&P 500 (SDS), which makes a double bet against the S&P 500, is down 40% in the past year, which compares to a 13% gain for the S&P 500. That means the “double” bet against the index is doing worse than promised, highlighting another risk for such funds: They often fail to track their stated performance goals.
I’m surprised that Kansas didn’t get this right – like many uninformed investors who have piled into these funds, he’s missed a fundamental aspect of how the ProShares Ultra ETFs are structured (emphasis is ProShares’):
This ETF seeks a return of -200% of the return of an index (target) for a single day. Due to the compounding of daily returns, ProShares’ returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period.
So SDS is not “doing worse than promised” or failing “to track [its] stated performance goals.” There’s plenty worth criticizing about the sliced and diced niche ETFs, and it’s certainly legitimate to warn most retail investors away from them. But let’s get the facts straight about these products actually are.
A number of Covestor models use the Ultra ETFs as they were intended to be used – primarily as trading vehicles.
Sources:
“Exchange-Traded Funds Gone Wild” Dave Kansas, Wall Street Journal 4/3/11
http://online.wsj.com/article/SB10001424052748703806304576239383750216242.html
Proshares UltraShort S&P500
Product Page
http://www.proshares.com/funds/sds.html
