Michael Johnston: ProShares added a pair of products designed for investors looking to bet on the short term performance of the often volatile financial sector today. Two new ETFs, the ProShares UltraPro Financials (NYSEARCA:FINU) and ProShares UltraPro Short Financials (NYSEARCA:FINZ) will offer 300% daily leveraged exposure to the Dow Jones U.S. Financials Index, a benchmark that consists of large banking institutions. The iShares Dow Jones U.S. Financial Sector Index Fund (NYSEARCA:IYF) offers non-leveraged exposure to that benchmark. IYF, which is up about 11% so far in 2012, makes its largest individual allocations to Wells Fargo, JP Morgan, and Berkshire Hathaway.
The financial sector has continued to exhibit significant volatility in 2012, creating potentially attractive opportunities for active traders looking to profit from short term swings in either direction. IYF, for example, has shownconsiderably greater volatility than the S&P 500 so far in 2012 [for actionable investment ideas, sign up for the free ETFdb newsletter].
Like many ProShares ETFs, FINU and FINZ will seek to deliver daily results that correspond to an amplified change in the daily returns realized by the target index. Over multiple trading periods (or holding periods shorter than a single session), the performance of these product will be impacted by trends in the market. Oscillating markets–where gains are followed by losses and vice versa–can eat into returns of leveraged ETFs. Conversely, trending markets can enhance positive returns or limit losses in leveraged products over multiple sessions.
Leveraged Financials ETFs
The new ProShares ETFs will compete directly with existing Direxion ETFs that offer 3x (NYSEARCA:FAS) and -3x (NYSEARCA:FAZ) exposure to the same sector. The Direxion funds are linked to the Russell 1000 Financial Services Index, and have been around since 2008, and both boast impressive liquidity; FAS trades about eight million shares daily, while FAZ has an average daily volume of about 16 million shares [ETFdb Pro members can see the Financials Free ETFdb Portfolio ; sign up for a free 7-day trial to access all 40 model portfolios].
ProShares also already offers a pair or 2x leveraged financials ETFs; UYG seeks to deliver daily returns equal to 200% of the same index, while SKF strives for -200%. Those two products are also quite popular, with aggregate assets of close to $1 billion.
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