Eric Dutram: ProShares, the Maryland –based ETF issuer best known for its wide array of leveraged and inverse ETFs, has expanded its lineup in this space once again with two more funds. The company has just released ETFs targeting the financial market with 3x and -3x leverage over a single day, both tracking the Dow Jones U.S. Financials Index.
The two funds, the UltraPro Financials ETF (NYSEARCA:FINU) on the long side and the UltraPro Short Financials ETF (NYSEARCA:FINZ) for bearish exposure, give investors exposure to both sides of the financial picture, charging investors 95 basis points a year in fees (seeBeware These Three Volatile Financial ETFs).
With this focus, investors now have two volatile products that look to be in focus given the ongoing turmoil in the global financial markets. However, with the daily rebalancing feature, long-term returns will likely deviate from what some investors might expect, suggesting that these products should primarily be used by short-term traders.
The Index Behind FINU and FINZ
The Dow Jones U.S. Financials Index, which is the basis for both of the products, looks to act as a broad barometer for the American financial services industry. Exposure is tilted towards banks and general financial companies, while REITs (19%) and nonlife insurance firms (14.9%) round out the top four. In terms of individual companies in the index, JP Morgan (NYSE:JPM) and Wells Fargo (NYSE:WFC) take the top two spots, accounting for roughly 14.5% of the benchmark.
ProShares Financial ETF Lineup
The two products also help to round out the exposure profile for ProShares in the leveraged/inverse financial world. Before FINU and FINZ, the company already had a (-100%) Short Financials ETF (NYSEARCA:SEF), as well as 2x/-2x funds, as represented by the Ultra Financials (NYSEARCA:UYG), and UltraShort Financials (NYSEARCA:SKF) funds (readThree Financial ETFs That Avoid Big Bank Stocks).
Combined, these three have more than one billion in assets, suggesting that there is great interest in the space among a wide swath of investors, making ProShares’ decision to launch 3x/-3x products an easy one.
However, investors should note that ProShares main rival, Direxion, has already beaten ProShares to the punch when it comes to the leveraged 3x/-3x financial ETF market. The company already has the Daily Financial Bull 3x Shares (NYSEARCA:FAS) and its short counterpart, the Daily Financial Bear 3x Shares (NYSEARCA:FAZ).
These two funds have proven to be extremely popular among many investors both from a short-term trading perspective as well as a hedging strategy as well. FAZ and FAS have more than $2 billion in combined assets while volumes are quite robust coming in at 8.5 million shares a day for FAS and over 16.4 million a day for FAZ (read Guide to the 25 Most Liquid ETFs).
These volumes suggest that the triple leverage space in the financial ETF world is an extremely popular one. However, given the extreme lead that FAZ and FAS have over the new ProShares funds, FINU and FINZ could have some trouble amassing a decent following, especially since all the funds have the same expense ratio (see more in the Zacks ETF Center).
Either way, it will be interesting to see if investors in the leveraged financial ETF world are looking for a new alterative in the 3x/-3x markets and if ProShares can capture as many assets in this market has it has in the other corners of the leveraged ETF niche.
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