I am Very Skeptical About Ultrashort Financial’s Viability
I was kind of curious when I saw the following comment and wondered what SKF was
I play SKF as the inverse to protect any long position on my financial stocks. That way I’m protecting any downfall on stocks like (BAC) and (C).
SKF turns out to be a ticker for an Exchange Traded fund called UltraShort Financials ProShares. Take a look at its profile on yahoo.
The investment seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the Dow Jones U.S. Financial’s index. The fund normally invests 80% of assets in financial instruments with economic characteristics that should be inverse to those of the index. It may employ leveraged investment techniques in seeking its investment objective. The fund is non-diversified.
I had a good laugh when I read its profile and thought the fund was some kind of scam. Please don’t be offended if you love the fund. I just don’t see the reason of such fund’s existing. To my surprise its daily volume is huge. Some 40 million shares changed hand today and the price was at $42.94. I am very skeptical about the fund because the strategy it takes is to go against the market for sake of going against it. I mean as an investor I want to buy a fund that can make me money not to going against the market. That is whole point of buying a fund right?
Think it in another way probably the fund is intended to be a hedging tool and its intention is not to grow asset or make money for investors. Still I think there are plenty of hedging vehicles in the market nowadays which can be tailor to suit different hedging needs. Why would people trade this fund which performance will be twice the inverse of the daily performance of the Dow Jones U.S. Financial’s index. Let me know if you see a reason. Take a look at its performance yesterday. It was down 7% versus the DOW’s gain of 2.37%
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No offense, but the reason should be obvious - people who buys this ETF is shorting the financials. Take one day for example - May 13. Dow closed 184.22 points from previous day’s level (previous closed at 8469.11), a loss of 2.17%. On that day, SKF closed at 48.82, compared to the previous day’s close 44.48, it was a 9.76% gain.
SO instead of shorting a certain bank stock, one buys into SKF and if financial sector goes down, there comes profit.
Unfortunately, the stock market goes the other way recently, most of the time…
BTW, I was wondering why BAC went down why almost all other bank stocks went up. Right now I do not have the guts to buy into BAC or C. Time will tell. After all, Monday’s rally is a joke to me. I still think US economy is in deep SH*T and it will go worse.
Well I missed read this “twice the inverse of the daily performance of the Dow Jones U.S. Financial’s index” I thought it is the inverse of the DOW Jones industrial index. So it is specifically tailor to hedge the financial sector. That make sense to me. I think today’s run up is too much also. We see how it goes tomorrow.
Thanks Leon!
SKF was one of the best plays in the financials for Jan/Feb of 2009 IMO. Look at the movements back then. It might not be a solid play at present as its considerably lower. But like Leon said, it was short play for the overall financial market which people could purchase WITHOUT actually shorting a specific stock and thereby going into a margin trade situation that not all are either comfortable with or have the ability to do.