More Triple-Leverage ETF Competition (UPRO, SPXU, FAS, FAZ)

ProShares already has double leverage ETFs for investors and traders alike.  It now has launched two new Triple-Leverage ETFs.  The UltraPro S&P500 (NYSE: UPRO) is meant to offer 300% of the daily return for the S&P 500 Index.  The UltraPro Short S&P500 (NYSE: SPXU) is meant to offer the 300% inverse of the daily return of S&P 500 Index.  While these are not exactly the same as Direxion’s Triple-Leverage ETF’s, they are meant as competition to the 20 Triple-Leverage ETFs run by Direxion.

The Direxion Daily Financial Bull 3X Shares (NYSE: FAS) and the Direxion Daily Financial Bear 3X Shares (NYSE: FAZ) track the Russell 1000 Financial Services Index rather than the S&P 500 Index.  But with the two offsetting funds from Direxion frequently trading 450 million shares combined on many trading days  and with the SPDRs (NYSE: SPY) trading over 250 million shares on most days, it is not hard to imagine why ProShares wants to launch these.

To add even more confusion to the mix, this is one of the few four-letter stock tickers that is NYSE Arca listed rather than being on NASDAQ.

We recently discussed the possibilities that some reverse splits were possible in the FAS/FAZ after speaking with a Direxion representative, but that has never come about.  Its Mid-Cap ETF did do a reverse split and there is a chance that market conditions could drive that closer to reality rather.

As a reminder, the leveraged ETFs often have compounding and also have derivative contracts that cause these to frequently not coincide exactly with the real moves of the underlying index.  The more derivatives and other instruments are used, the more likely the lack of correlation is likely to continue.

Jon C. Ogg
June 25, 2009