Exchange Traded Funds (ETFs)

Bet Against the S&P 500 with This Fund

The ProShares Short S&P500 (NYSEARCA:SH) provides inverse exposure to a market cap-weighted index of 500 large- and mid-cap U.S. firms selected by the S&P Index Committee.

SH offers a bet against the S&P 500 and provides the liquidity required to allow investors to use it as such. The fund, like most leveraged and inverse products, is designed to deliver its inverse exposure to its underlying index — a market cap-weighted basket of 500 large-cap U.S. firms selected by the S&P Index Committee.

Holding this fund for a period longer than a day will introduce the effects of compounding, even if this is less pronounced in a non-leveraged product. Still, the tool is designed to be held for the short term (days or weeks) with frequent rebalancing of exposure to approximate the target -1x multiple.

This fund is not a buy-and-hold investment and should not be expected to provide index leverage return greater than a one-day period.

Source: www.stockcharts.com

The fund invests in financial instruments that ProShares Advisors believes, in combination, should produce daily returns consistent with the fund’s investment objective. It is a float-adjusted, market capitalization-weighted index of 500 U.S. operating companies and real estate investment trusts selected through a process that factors in criteria such as liquidity, price, market capitalization, financial viability and public float. The fund is non-diversified.

SH has $3.8 billion in assets under management and a 0.07% average spread. Its expense ratio is 0.88%, meaning it is relatively expensive to hold in relation to other exchange-traded funds.

While this fund provides investors with inverse exposure to the S&P 500, this kind of ETF may not be appropriate for all portfolios, hence interested investors should always conduct their own due diligence in deciding whether the fund is suitable for their own individual investing goals.

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As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Successful Investing, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.