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The ProShares UltraPro Short S&P 500 (SPXU) is a leveraged inverse exchange traded fund (ETF) that aims to earn three times the inverse of the daily performance of the S&P 500 Index.
An inverse ETF like the SPXU is designed to move in the opposite direction of the S&P 500, using leveraged investments such as short sales and futures contracts. Futures contracts are derivatives, meaning they derive their value from an underlying asset or security. Futures are legal contracts to buy or sell the underlying at a predetermined future price and date.
The SPXU is a speculative, aggressive investment that carries a significant amount of risk, and investors can lose some or all of their investment or principal.
Key Takeaways
- The ProShares UltraPro Short S&P 500 (SPXU) is an aggressive leveraged inverse ETF available to investors.
- SPXU seeks to replicate the S&P 500 performance, but in the opposite direction and multiplied by three.
- SPXU is not suitable for long-term investing and is meant to be held for one day or less.
- The SPXU is a speculative investment that carries significant risk, and investors can lose all of their investment.
- For the 10 years ending Dec. 31, 2021, the SPXU posted a -45.18% return.
How the ProShares UltraPro Short S&P 500 ETF Works
To provide three times the inverse daily exposure to the S&P 500 Index, SPXU holds swaps from multiple counterparties and futures contracts. The fund’s top holdings are S&P 500 swaps from the big banks.
Since SPXU invests in financial instruments with few counterparties, it is considered a non-diversified fund, which may cause the credit of these counterparties to impact SPXU’s performance.
Like all leveraged ETFs, the SPXU should be held for no longer than one day due to the compounding of daily returns. In other words, the target for the index is a one-day return, meaning if investors hold the fund for longer than one day, the returns can be significantly different than the targeted returns. The fund’s exposure level varies day-to-day due to the daily rebalancing of the portfolio.
Investors should monitor their portfolios closely and contact a financial advisor to determine if the risk: reward for an inverse ETF such as the SPXU is appropriate for their long-term investment objectives.
Characteristics of the SPXU
SPXU was issued by ProShares on June 23, 2009. The ProShares UltraPro Short S&P 500 ETF is listed on the New York Stock Exchange Arca. Speculative traders can trade it on a number of platforms.
The fund is legally structured as an open-ended investment company, and its adviser is ProShares Advisors. The fund has $598.78 million in assets under management (AUM) as of February 10, 2022. SPXU has a relatively high expense ratio of 0.90%, as of February 10, 2022, but does not include trading and broker fees, which can vary. The fund’s high expense ratio can be attributed to the actively managed process of daily rebalancing.
Performance of the SPXU
From the fund’s inception date of June 23, 2009, to December 31, 2021, the SPXU has had a return of -46.43% versus a 16.62% gain in the S&P 500 index. Below is a table containing the performance for the SPXU over the years.
| Average Month-End Total Returns for ProShares UltraPro Short S&P 500 (SPXU) | |
|---|---|
| Performance | |
| 3 Year | -62.13% |
| 5 Year | -49.94% |
| 10 Year | -45.18% |
Sector Weightings for the S&P 500 Index
Since the ProShares SPXU shorts the S&P 500 index, knowing what sectors comprise the index is essential. If these sectors perform well, pushing the S&P 500 index higher, the SPXU will likely have a loss. Conversely, if these sectors decline, pushing the S&P 500 lower, the SPXU will likely post a gain. Below are the percentage weightings for the top sectors of the S&P 500 as of December 31, 2021.
| The S&P 500 Index Percentage Weightings for the Top Sectors | |
|---|---|
| Sector | Weighting |
| Information Technology | 29.17% |
| Health Care | 13.29% |
| Consumer Discretionary | 12.54% |
| Financials | 10.69% |
| Communication Services | 10.16% |
| Industrials | 7.78% |
| Consumer Staples | 5.88% |
| Real Estate | 2.77% |
| Energy | 2.67% |
| Materials | 2.56% |
| Utilities | 2.50% |
Risks Associated with the SPXU
ProShares may invest in equities, securities, and financial instruments, such as derivatives, that may achieve a similar daily return to the ETF’s benchmark. SPXU allows traders to place single-day trades against the S&P 500. However, the ProShares UltraPro Short S&P 500 ETF uses leverage in its goal of delivering three times the inverse daily return of the S&P 500 Index.
Just as leverage can magnify gains, leverage can also magnify losses, particularly if the S&P 500 rises significantly. The ProShares UltraPro Short S&P 500 ETF should be considered extremely risky and not suitable for everyone.
An investment in the SPXU carries a multitude of risks, including counterparty, equity, market, and intraday price-performance risk. The ProShares UltraPro Short S&P 500 ETF carries greater risks than many funds. Also, there is no guarantee that the SPXU ETF will achieve its performance and investment objectives, and investors should be aware that some or all of their investment amount could be lost.