Betting Big with this Short ETF

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.

Much like last week’s featured exchanged-traded fund (ETF) in The Deep Woods, the ProShares Short Russell2000 ETF (RWM) provides a bet against the Russell 2000’s index of 2,000 U.S. small-cap firms, the majority of which are growth and value stocks.

The underlying index, the Russell 2000, specifically contains the 1,001st through the 3,000th securities of the Russell 3000, which covers approximately 10% of its total market capitalization. RWM’s portfolio encompasses securities across a broad range of sectors and industries with no bias and, once the security and industry groups are chosen, they are then weighted by market cap. 

To achieve the desired inverse exposure, RWM uses both ETF and index swaps. The ProShares Short Russell2000 ETF is a levered product and resets daily. As such, RWM is not a buy-and-hold fund and therefore should not be expected to approximate an inverse leverage return beyond a one-day period.

The fund, established in 2007, has $589.3 million in assets under management. As is visible from the chart below, its performance does have its share of dips. Its spikes are just as strong, if not stronger.

After a sharp dip in early August, the fund has more than recovered and is close to the high end of its 52-week range, which is $27.14 per share. Currently, RWM is trading around $25.11, up 0.9% from its open and off only about two points from its 52-week range high.

Courtesy of Stockcharts.com

As RWM provides a bet against the Russell 2000’s index, its nine top holdings include Russell 2000 Index Swap Bank Of America Na, 25.17%; Russell 2000 Index Swap Citibank Na, 22.24%; Russell 2000 Index Swap Bnp Paribas, 13.13%; Russell 2000 Index Swap Goldman Sachs International, 9.74%; Russell 2000 Index Swap Ubs Ag, 7.31; Russell 2000 Index Swap Societe Generale, 6.52%; United States Treasury Bills, 6.22%; Russell 2000 Index Swap Morgan Stanley & Co. International Plc, 6.07% and E-mini Russell 2000 Index Future June 21 (RTYM21), 6.03%. 

Once again, RWM is a levered product and not a buy-and-hold fund. For investors looking to add an ETF that will mature over time, this may not be the right fund, as it should not be expected to provide an approximate inverse leverage return beyond a one-day period.

So, 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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