A List Of The Top Ten (10) Leveraged Long/Short Alternative ETFs (DZZ, DGP, AGQ, ZSL, UCO, EUO)

David Fry: Our goal in this profile is to help investors wade through the many competing ETF offerings available. Using our long experience as an ETF  publication, and nearly 40 years in the investment business, we can help select those ETFs that matter and may or may not be repetitive. The result is a more manageable list of issues from which to view and make selections.

Leveraged issues have been the subject of great controversy. Some believe, mistakenly in our opinion that short leveraged products  particularly were in some ways responsible for enhancing stock market  declines during the 2008 bear market. These views are mistaken since there were many other products (options and futures) that allowed  investors to short major market indexes.  More significantly are tracking inefficiencies occasioned by both high periods of volatility and compounding problems which can mislead investors in believing these issues don’t do their job. We’ve written about these issues previously as noted in this article.

One thing remains clear when dealing with leveraged issues of all types—they must be traded. Investors wishing to participate in these issues must understand the higher risks associated with these including  tracking issues cited above. Investors must be sophisticated and experienced in dealing strategies and products that inherently possess  higher risks. We have found that successfully dealing in these requires a  technically-based approach.

Leveraged issues can help investors hedge and catch-up with markets if investors feel late to a rapidly developing trend. In the latter case, investors can make-up ground quickly and then convert to the unleveraged ETF.

We’re not ranking these ETFs favoring one over another so don’t let the listing order mislead you. Although we may use some of these in ETF Digest portfolios it’s not our intention to recommend one over another.

ProShares and DirexionShares dominate the offerings in this category.  The following charts are based on weekly presentations featuring 22  period moving averages, a Relative Strength indicator and conventional MACD moving averages. Not shown but perhaps referred to are Tom DeMark indicators which we use in conjunction with other proprietary indicators to determine our positions.

The most important thing to know about leveraged issues is they must be managed actively. Given index tracking and compounding issues it’s hard to sit on a position in a buy and hold fashion unless the trends are both strong and durable. This is of course impossible to know initially.

To determine positions it is often most useful to track the  relevant indexes and/or conventional ETFs to which these leveraged  products are linked versus these issues alone. Often erratic behavior of  the leveraged issues can alter what might ordinarily be the right  position. Further, the best experience in dealing with these issues is  to use limit orders when engaging in them and keying those off the  underlying indexes. Therefore, it’s important in our opinion to remember to remain disciplined and systematic in using these issues.

We’re presenting both the long and short leveraged major equity  market ETFs in pairs. This is because there is a back and forth to the AUM (Assets under Management) for each bull and bear product given  prevailing market trends. This alters liquidity considerations.

PowerShares/DB Double Long Gold ETN (NYSE:DGP) & PowerShares/DB Double Short Gold ETN (NYSE:DZZ) follows the Deutsche Bank Liquid Commodity Index-Optimum Yield Gold (200%). The funds were launched in February 2008. The expense ratio is .75%. AUM (DGP) equal $887 million and average daily trading volume is 1.3M shares. As of early September 2011 the YTD return was 56.03%.

AUM (DZZ) equal $50 million and average daily trading volume is 3.3M shares. As of early September 2011 the YTD return was -45.25%

ProShares Ultra Long 2x Silver ETF (NYSE:AGQ) & ProShares Ultra Short 2x Silver ETF (NYSE:ZSL) follows the daily performance of silver bullion as measured by the U.S. Dollar fixing price for London delivery. The funds were launched in December 2008. The expense ratio is .95%. AUM (AGQ) equal $1 billion and average daily trading volume is 1.6M shares. As of early September 2011 the YTD return was 42.12%

AUM (ZSL) equal $500 million and average daily trading volume is 11.3 million shares. As of early September 2011 the YTD return was -70.10%.

ProShares Ultra Long 2x Crude Oil ETF (NYSE:UCO) & ProShares Ultra Short 2x Crude Oil ETF (NYSE:SCO) follows the Dow Jones-UBS Crude Oil Sub-Index. The funds were launched in November 2008. The expense ratio is .95%. AUM (UCO equals $463 million and average daily trading volume is 3.2M shares. As of early September 2011 the YTD return was -38.01%.

AUM (SCO) equal $51 million and average daily trading volume is 1.8 million shares. As of early September 2011 the YTD return was 3.44%.

PowerShares/DB Double Long Base Metals ETN (NYSE:BDD) & PowerShares/DB Double Short Base Metals ETN (NYSE:BOM) follows the Deutsche Bank Liquid Commodity Index-Optimum Yield Industrial Metals (200%). The funds were launched in July 2008. The expense ratio is .75%. AUM (BDD) equal $13 million and average daily trading volume is 17K shares. As of early September 2011 the YTD return was -13.60%.

AUM (BOM) equal $9.2 million and average daily trading volume is 60K shares. As of early September 2011 the YTD return was 9.96%.

ProShares DJ-UBS Ultra Long 2x Commodity ETF (NYSE:UCD) & ProShares DJ-UBS Ultra Short 2x Commodity ETF (NYSE:CMD) follows the Dow Jones-UBS Commodity Index (200%). The funds were launched in November 2008. The expense ratio is .95%. AUM (UCD) equals $16 million and average daily trading volume is less than 10K shares. As of early September 2011 the YTD return was -3.31%

AUM (CMD) equal $9.3 million and average daily trading volume is 56K shares. As of early September 2011 the YTD return was -7.56%.

PowerShares/DB Double Long Commodity ETN (NYSE:DYY) & PowerShares/DB Double Short Commodity ETN (NYSE:DEE) follows the Deutsche Bank Liquid Commodity Index (200%). The funds were launched in April 2008. The expense ratio is .75%. AUM (DYY) equal $24 million and average daily trading volume is 33K shares. As of early September 2011 the YTD return was 7.20%.

AUM (DEE) equal $2 million and average daily trading volume is less than 6K shares. As of early September 2011 the YTD return was -13.40%.

PowerShares/DB Double Long Agriculture ETN (NYSE:DAG) & PowerShares/DB Double Short Agriculture ETN (NYSE:AGA) follows the Deutsche Bank Liquid Commodity Index-Optimum Yield Agriculture (200%). The funds were launched in April 2008. The expense ratio is .75%. AUM (DAG) equal $146 million and average daily trading volume is 280K shares. As of early September 2011 the YTD return was 9.10%.

AUM (AGA) equal $5 million and average daily trading volume is 34K shares. As of early September 2011 the YTD return was -18.28%.

ProShares Ultra Long 2x Euro ETF (NYSE:ULE) & ProShares Ultra Short 2x Euro ETF (NYSE:EUO) seeks daily investment results that correspond to twice (200%) the U.S Dollar price of the euro. The funds were launched in November 2008. The expense ratio is .95%. AUM (ULE) equals $8.8 million and average daily trading volume is less than 14K shares. As of early September 2011 the YTD return was 10.03%.

AUM (EUO) equal $710 million and average daily trading volume is 3M shares. As of early September 2011 the YTD return was -14.00%.

ProShares Ultra Long 2x Yen ETF (NYSE:YCL) & ProShares Ultra Short 2x Yen ETF (NYSE:YCS) seeks daily investment results that correspond to twice (200%) the U.S Dollar price of the yen. The funds were launched in November 2008. The expense ratio is .95%. AUM (YCL) equals $5.5 million and average daily trading volume is less than 11K shares. As of early September 2011 the YTD return was 9.61%.

AUM (YCS) equal $276 million and average daily trading volume is 733K shares. As of early September 2011 the YTD return was -11.75%.

PowerShares/DB 3x Long Dollar Index ETN (NYSE:UUPT) & PowerShares/DB 3x Short Dollar Index ETN (NYSE:UDNT) follows the Deutsche Bank U.S. Dollar Index Futures Index-Excess Return (300%). The funds were launched in May 2011. The expense ratio is .95%. AUM (UUPT) equal $3.7 million and average daily trading volume is 13K shares. As of early September 2011 the return for the quarter of its existence was 4.50%

AUM (UDNT) equal $4.3 million and average daily trading volume is 3K shares. As of early September 2011 the return for the quarter of its existence was -5.35%,

The competition between ProShares and Direxion shares remains intense. Excluded due to low liquidity are a couple of MidCap issues. To make these issues perform at their optimum level from a trading perspective the more liquidity the better.

Once again these issues aren’t for everyone. They’re to be used strategically and tactically either to speculate or add a quick hedge when needed. In our opinion a technical approach generally works best and this includes remaining disciplined and systematic at all times.

For further information about portfolio structures and technical indicators not displayed here (DeMark for example) using this or other ETFs see www.etfdigest.com.

Written By David Fry From ETF Digest

David is founder and publisher of ETF Digest and best selling book author of Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management published by Wiley Finance in 2008.  In July of 2009, Fry was named in the ETF Hall of Fame as one of the Top 25 people who revolutionized the ETF industry and guided ETF investing from its conception to widespread acceptance among all breeds of investors. Fry founded the ETF Digest in 2001 and was among the very first to see the need for an online publication that provided individual investors and financial professionals with trading tools, market information and actionable advice on ETF investing.  ETF Digest was recently ranked 9th in the Top 100 ETF websites from Alexa on exchange traded funds. Dave Fry has devoted over 35 years to the business of trading and portfolio management. He is registered as an arbitrator with the Financial Industry Regulatory Authority (FINRA) and the National Futures Association (NFA).

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