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The ProShares family of Exchange Traded Funds (ETFs) has introduced some innovative trading vehicles that are starting to get a lot more interest from the investing/ trading industry. Most readers of this blog are familiar with the QQQQ and the UltraQQQ (QLD, which is double exposure to the QQQQ) and UltraShort QQQ (QID, which is double inverse exposure to the QQQQ). These types of leveraged vehicles are also available for the SPY, DIA and many other popular indices. What has yet to really catch on though, is the leveraged sector specific funds. For instance in the video below I take a look at the Healthcare industry, specifically, the iShares Trust Dow Jones US Healthcare ETF (IYH). If you wanted double long exposure to this index, you could buy the ProShares Trust Ultra Healthcare (RXL). Or if you wanted double short exposure to the IYH, you could buy the ProShares Trust UltraShort Health Care (RXD).

There are many advantages to the ProShares funds. You can invest half the amount of capital in a leveraged long position, earn (or lose) the same amount as you would in the underlying vehicle, but you would also free up capital which could be earning interest in a money market account, T-bills or some other cash alternative. If you are more of a gunslinger, the leveraged fund would allow you to get double exposure for your capital (or you could even buy it on margin and gain greater exposure like Goldman Sachs has done in some of their hedge funds… I know that’s a cheap shot but I couldn’t resist). Of course, leverage can work against you as I outlined in the video. For short side exposure, many people find it more comforting psychologically to go long an inverse fund that to actually sell short the underlying vehicle which makes an inverse fund attractive. An even bigger benefit of the inverse funds is the ability to gain short side exposure to the market or a specific sector in your IRA or other qualified money plan. IRA investments have been restricted from margin trading (all short sales must be done in a margin account) which has restricted their ability to sell short too. Buying QID, RXD or some of the other 30 or so short or UltraShort ETFs from ProShares allows you to go long and benefit from declining markets, that opens a huge new opportunity for trillions of dollars in qualified retirement accounts. I wish the ProShares was a publicly traded company.




View WALLSTRIP here, the subject is Healthcare.

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