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XMFSinchiruna (27.57)

Confusing action in the ProShares index ETFs

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December 23, 2008 – Comments (12)

Well ... I was quite surprised this morning by the double digit declines in the ProShares ETFs which I track on very low volume. For a moment, I thought maybe something had burst structurally within the funds in terms of their derivative contracts,... but in case anyone else is as perplexed as I was, the following news piece (which I clearly overlooked) makes all the difference:   :)

http://biz.yahoo.com/bw/081222/20081222005889.html?.v=1

BETHESDA, Md.--(BUSINESS WIRE)--ProFunds Group, the world’s largest manager of short and leveraged funds,1 has announced fourth quarter income dividend distribution declarations for its ProShares ETFs. The firm expects dividend distributions for 52 of its 76 ETFs. Capital gain distributions for 35 of the firm’s ETFs were announced earlier today. The amounts to be distributed per share are listed below. 

Distributions reduce the net assets of each of the affected ETFs as of the close of business today and the ETFs will trade ex-dividend tomorrow. Each portfolio’s exposure to its benchmark index will be adjusted today to reflect this reduction in assets.

12 Comments – Post Your Own

#1) On December 23, 2008 at 12:10 PM, OtherOracleOfOMA (32.48) wrote:

The ETF managers like to keep the funds within a reasonable range, as they feel that to high a market valuation would make them too expensive for small-scale investors and traders, thus hurting their business. Nothing to worry about.

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#2) On December 23, 2008 at 12:28 PM, blake303 (29.30) wrote:

Will CAPS scores be adjusted to reflect the distributions? It should be nearly a wash ignoring taxes, but I do not see any indication that starting prices on ultra shorts were adjusted accordingly.

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#3) On December 23, 2008 at 12:37 PM, XMFSinchiruna (27.57) wrote:

blake303

That's an interesting question. Let's wait until tomorrow to see whether CapitalIQ, Yahoo, and the other quoting services adjust the historical charts and cost bases accordingly as they would with a split. If not, I'll get an answer for you.

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#4) On December 23, 2008 at 12:44 PM, blake303 (29.30) wrote:

Thank you.

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#5) On December 23, 2008 at 11:34 PM, RVAspeculator (29.92) wrote:

Since I am short all of this garbage in CAPS I hope it sticks.   Since its a non cash "capital gains" adjustment I can't see the actual price adjusting in Yahoo or in CAPS.   This is basically a way to hurt shorts.  What if you do not have capital gains to offset?   Does this tax trick still help you?

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#6) On December 24, 2008 at 12:45 AM, falang1 (96.12) wrote:

Yea, I was in shock when I saw the price of my short this morning.  I guessed right and the market went down only to have my short go down!  Do you have to hold the short until Dec 30 to get the distribution?  If so, hopefully the short doesn't get hammered before I can sell.  I was hoping to sell today until I saw that lovely bit of news.

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#7) On December 24, 2008 at 4:38 AM, DemonDoug (84.80) wrote:

I think we should have less listening to goldman sachs, and more listening to Proshares, whoever they are, because they definitely have the right financial product for the market we are in.

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#8) On December 24, 2008 at 11:29 AM, blake303 (29.30) wrote:

Since its a non cash "capital gains" adjustment I can't see the actual price adjusting in Yahoo or in CAPS.

These are cash distributions payable December 30th. As such, they should be handled in the same manner as dividends by reducing the starting price of the ETF. I assume that the tax consequences of capital gains distributions are negligible as CAPS does not tax dividends either.

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#9) On December 24, 2008 at 11:55 AM, RVAspeculator (29.92) wrote:

Oh well...  they are still going to zero... all of them...    Its a shame they adjusted my started prices but they are all headed to the "levered pink sheets"   Short and long ultras...

I sold SKF at $140 this summer when the XLF was still in the mid 20's....   now XLF is near 10 and SKF is $115.  

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#10) On December 26, 2008 at 9:17 AM, kfisherprotege (30.63) wrote:

Oh well...  they are still going to zero... all of them...

Oh really??  What is your basis for saying that?  Are the funds  or the derivatives they're based on structurally flawed or are ProShares, Ryder and the like about to implode?  I own SIJ right now, and other than the Dec 22 higher than expected distribution, it seems to be tracking twice the inverse of DJUSIN quite correctly.

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#11) On December 26, 2008 at 10:06 AM, XMFSinchiruna (27.57) wrote:

I would keep such positions to very tiny tiny allocations at this point, agreeing with RVA that structurally such instruments could prove quite worthless in a worst-case scenario economic emergency.

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#12) On December 26, 2008 at 6:26 PM, RVAspeculator (29.92) wrote:

kfish,

Not to take over Sinchiruna's blog, but im just saying they are all trending lower  (the double longs AND the double shorts) over time.For instance at the close on Friday SKF trades at $116...  XLF trades at $11.70.  6 months ago (arbitrary date chosen) on July 1st  2008 SKF traded at $153.On July 1st 2008 XLF traded at $20.30.So say you were bearish on financials and decided to purchase some SKF to short them 6 months ago.   You were right and in the coming 6 months the XLF crashed almost 50%…  Too bad the “Double Short Financials” SKF went down 24% in the same time period and you are out a quarter of your money.   Can you imagine how much it would be down if the index it was shorting didn’t crash 50%????The ultra-longs and shorts underperform what they are supposed to do just a little bit every day and it really adds up over periods of time.   I use the ultra-longs and shorts myself (mostly for hedging) but I never hold them longer than 2-3 weeks for this reason.

Sinchiruna,

Another great week for gold bugs.  I hope you are enjoying this run as much as I am!   Hard to believe it was just a few short weeks ago we were arguing with some guy over on my blog if GDX was a buy at $20 or if MFN and JAG were buys in the $2’s or not.   :)

You will be vindicated here.  $900 falls and the rush to gold will be swift.

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