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New Powershare ETFs Give Exchange Traded Fund Investors New Ways to Profit in Down Markets

Aug 17, 2007
The current markets are getting harder and harder to trade. It seems everything is going down. Domestic equities, Emerging markets, Asian markets, and even after a weeks rally, metals and energy markets have turned down again. So other then cash is there any place to put your money?

ProShares Advisors has come up with four new funds that address the problem. These funds are know as the UltraShort ProShares. These are the first Exchange Traded funds to provide magnified short exposure to major market indexes. These funds are designed to provide twice the daily inverse return of the NASDAQ 100 (QID), S&P 500 (SDS), S&P Midcap 400 (MZZ), and Dow Jones Industrial Average (DXD).

ProShares has timed the introduction of these funds well. Investor confidence is weak. Areas such as Emerging Markets, Japan, and commodities that have attracted a lot of investor confidence over the past year are now spotty.

Individually these new Exchange Traded Funds can be very volatile. Investors need to be very aware of what they are investing in when they invest in these funds. However, used as part of a larger strategy, these new funds can add a level of sophistication ETF investors have been looking forward to for a number of years. ETF investors have always had the option of shorting funds but this involves setting up a margin account and a level of risk that many investors are unwilling to take.

Investing in these new ultra short funds allows investors to make investments in markets going south without setting up a margin account and taking on high risk. Investors in these funds can even play it safer by using these funds as a hedge to their long positions in index or sector funds. In this way Exchange traded Fund Investors have even less at rish because if they are wrong about a market downturn, they also hold positions that will gain in market conditions are more favorable. Adding this to the mix is giving ETF investors many strategies they can use in many types of markets. Someone who understands the funds and understands the markets will find it possible to put together highly sophisticated strategies.

These funds will trade on the American Stock Exchange. Investors need to take into consideration that these funds move inversely at twice the rate of the indexes they track. If over the period of one month the NASDAQ is down 5%, the QID will gain 10%. This makes for very volatile investing so take care.
About the Author
Andrew Goldman is president of Metal Rabbit media services, the operator of Get ETF Info He has written a number of articles on finance and environment over the last ten years.
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