Michael Johnston: ProShares announced last week an expansion to its lineup of 3x leveraged ETFs, rolling out a fund that delivers -3x daily exposure to long-term U.S. Treasuries. The new UltraPro Short 20+ Year Treasury (NYSEARCA:TTT) will seek to deliver daily results that correspond to -300% of movements in the Barclays Capital U.S. 20+ Year Treasury Index, a benchmark comprised of long-dated debt obligations of the U.S. government.
The new ETF is linked to the same index as the extremely popular UltraShort 20+ Year Treasury (NYSEARCA:TBT), which offers -2x daily exposure to long-term Treasuries. That ETF, which debuted about four years ago, has become one of the most popular leveraged bond ETFs out there; TBT has more than $3.5 billion in assets and trades about 12 million shares on an average day.
TTT In Focus
Because the underlying index consists of Treasuries with at least 20 years remaining until maturity, TTT can be a potentially useful tool for betting on rising interest rates. An increase in interest rates–currently hovering at record lows–could be devastating for long-term fixed income securities that maintain significant effective durations (and therefore significant interest rate risk).
Long-term bonds have performed exceptionally well over the last several years, climbing higher thanks to record low interest rates and lingering risk aversion. The iShares Barclays 20 Year Treasury Bond Fund (NYSEARCA:TLT), which holds a portfolio of long term government bonds, has added about 50% during the last five years. But many investors have long been suspicious of a bubble in bond markets that could be popped once rates begin climbing and risk appetite returns. Those predictions, which have been popular for years, are perhaps just now starting to come to fruition; TLT has lost about 7% year-to-date as equity markets have shown strength [see Best ETF Performers Over The Last Five Years].
Direxion also offers a -3x leveraged ETF that targets long-term Treasuries; the Daily 20 Year Plus Treasury Bear 3x Shares (NYSEARCA:TMV) is linked to an index that consists primarily of Treasuries with 25 or more years remaining until maturity. TMV has done quite well so far in 2012 as investors have turned against long-term debt; the ETF is up about 20% so far on the year. TMV has about $360 million in assets [see all leveraged bond ETFs].
Like most leveraged ETFs, TTT will charge an expense ratio of 0.95%.
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