The ProShares UltraPro Short S&;P 500 (NYSEARCA: SPXU) is a leveraged inverse exchange-traded fund (ETF) seeking to provide traders and speculators with a return that is three times the inverse of the daily performance of the S&;P 500 Index. As of June 30, 2015, since the fund's inception on June 23, 2009, SPXU has an annualized market return of -46.95%.
To provide three times inverse daily exposure to the S&;P 500 Index, SPXU holds swaps from multiple counterparties and futures contracts. For example, as of Aug. 5, 2015, SPXU's top 10 holdings consist of S&;P 500 Index Swap - Citibank NA; S&;P 500 Index Swap - Bank of America NA; S&;P 500 Index Swap - Societe Generale; S&;P 500 Index Swap - Morgan Stanley &; Co. International PLC; S&;P 500 Index Swap - Credit Suisse International; S&;P 500 Index Swap - UBS AG; S&;P 500 E-Mini Future expiring on Sept. 18, 2015; S&;P 500 Index Swap - Goldman Sachs International; S&;P 500 Index Swap - Deutsche Bank AG; and SPDR S&;P 500 Swap - Goldman Sachs International.
Since SPXU invests in financial instruments with a few counterparties, it is considered a nondiversified fund. This may cause the credit of these counterparties to impact SPXU's performance. Like all leveraged ETFs, SPXU should be held for no longer than one day due to the compounding of daily returns. The fund's exposure level varies day-to-day due to the daily rebalancing of the portfolio.
SPXU was issued by ProShares on June 23, 2009. The ProShares UltraPro Short S&;P 500 ETF is listed on the New York Stock Exchange Arca, and speculative traders can trade it on multiple platforms. The fund is legally structured as an open-ended investment company, and its adviser is ProShares Advisors. The fund has assets under management of $484.7 million.
SPXU has a high expense ratio of 0.92%, and investors should keep in mind the ratio does not include trading and broker fees, which vary between traders. The fund's high expense ratio can be attributed to its daily rebalancing.
Suitability and Recommendations
Like any investment, the ProShares UltraPro Short S&;P 500 ETF carries risk. Traders and investors are exposed to a multitude of risks, such as correlation risk, equity risk, market risk, intraday price performance risk, counterparty risk and nondiversification risk, when trading SPXU.
As of June 31, 2015, based on trailing five-year data, SPXU had an alpha, against the S&;P 500 Total Return Index, of -9.74; a beta, against the S&;P 500 Total Return Index, of -2.71; an R-squared of 97.56; and a Sharpe ratio of -2.15.
Based on modern portfolio theory (MPT), the fund's alpha indicates it underperformed the S&;P 500 Total Return Index by an annualized 9.74%. The fund's beta indicates it is inversely correlated to and theoretically more volatile than the S&;P 500 Total Return Index; this may indicate SPXU carries more risk. The fund's R-squared of 97.56 indicates 97.56% of its past price fluctuations were explained by fluctuations in its benchmark index. The fund's Sharpe ratio of -2.15 indicates the fund has done poorly to provide investors with an adequate return given the amount of risk taken. The fund's negative Sharpe ratio indicates it underperformed securities that return the risk-free rate.
SPXU is one of the most aggressive inverse ETFs in the market and allows traders to place single-day trades against the S&;P 500 Index. Since the ProShares UltraPro Short S&;P 500 ETF seeks to provide three times the inverse daily return of the S&;P 500 Index, it is extremely risky and not suitable for everyone. According to MPT, SPXU is best-suited for speculative traders and investors who monitor their positions daily and are bearish on the S&;P 500 Index. If investors are extremely bearish on the index and want leveraged inverse exposure for more than one day, the positions need to be adjusted daily.