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If the Emerging Markets Cool, You'll Want Shares of
this New ETF |
Published: December
4,
2007
As the name implies, UltraShort MSCI
Emerging Markets ProShares (AMEX:
EEV, $74.16) offers investors an
easy way to short, or bet against,
the MSCI Emerging Markets Index.
Specifically, the fund is designed
to provide approximately double the
inverse of the daily return of the
MSCI EM Index. For example, on a day
when the underlying benchmark drops
-2%, EEV shareholders can reasonably
expect to see gains (before fees and
expenses) of +4%.
The math doesn't always work out to
the penny over the long-haul, but
the premise is simple enough: bad
news for emerging market stocks is
great news for this fund, and
vice-versa.
ProShares offers a growing
assortment of funds geared to move
in the opposite direction of an
underlying basket of stocks --
whether it's a broad index like the
Russell 2000 or even a specific
industry group such as financial
services. Think that small-caps will
bear the brunt of a recession-driven
pullback? Convinced that there is
more misery ahead for the banking
sector? Then these funds would be
the way to go.
Of course, in the case of emerging
market stocks, an inverse fund
(particularly a leveraged one that
magnifies returns) would have been
the last place you wanted to invest
-- at least until recently.
Investors have pumped $13.5 billion
into emerging market ETFs so far
this year, and it's easy to see why:
the benchmark MSCI EM Index has
delivered red-hot annual gains of
+34% over the past three years.
However, emerging market equities
are also notoriously volatile and
will likely be one of the harder-hit
areas in the event of a global
sell-off. To give you a glimpse of
that, when the market tumbled on
November 21st, the iShares MSCI
Emerging Markets Fund (AMEX: EEM)
suffered a steep -5% decline, while
EEV soared around +9%.
For those that think the emerging
markets are overheated and prone to
even deeper declines, then this fund
is for you.
Our View --> ProShares launched this
fund (and a non-leveraged version --
Short MSCI Emerging Markets
ProShares (AMEX: EUM)) in early
November and has since followed up
with a fund that takes a similar
approach in China (where stocks have
soared +600% over the past five
years).
Over the long-haul, we think the
emerging markets story is one worth
telling, but investors should expect
a few plot turns along the way.
Still, we don't engage in day-to-day
market timing and won't attempt to
speculate on what emerging markets
will do over the next few weeks.
However, we do believe that this
fund could be a useful hedging tool
for investors with considerable
exposure to these stocks. For those
that want to protect profits without
closing out their positions (and
triggering hefty capital gains
taxes), then EEV may be the answer.
Also, for anyone interested in
shorting other indices or sectors,
we should point out that Rydex is
busy launching a wave of inverse
funds with expense ratios of 0.70%
-- versus 0.95% for ProShares.
Good investing!
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Nathan Slaughter
Editor
The ETF Authority, Half-Priced Stocks
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