ProShares Launches 3X Short T-Bond ETF

March 29, 2012

ProShares looks to replicate the success of TBT with a triple-exposure ETF designed to short long-dated Treasurys.

ProShares, the world’s biggest purveyor of inverse and leveraged ETFs, today launched a triple-exposure ETF designed to short long-dated Treasurys, adding to a popular product from the Bethesda, Md.-based fund company that serves up double-short exposure to an index comprising U.S. Treasury bonds with at least 20 years to maturity.

The ProShares UltraPro Short 20+ Year Treasury ETF (NYSEArca: TTT), comes with a 0.95 total expense ratio, the same price as the double-exposure ProShares UltraShort 20+ Year Treasury ETF (NYSEArca: TBT). TBT, which had $3.79 billion in assets as of March 28, is the largest leveraged and inverse exchange-traded fund in the world.

TBT and now the new TTT could come in handy should the three-decade bull market in bonds draw to a close. But even without a full reversal, the ETFs are perfect tools for benefiting from short-term moves. In fact, because they rebalance daily, their returns will frequently deviate significantly from the underlying index they share, making them most appropriate for investors who constantly monitor their portfolios. Such leveraged ETFs are not considered appropriate for long-term holding.

Both TTT and TBT are based on the Barclays 20+ Year Index—the same benchmark used by the single-exposure long ETF, the $3.17 billion iShares Barclays 20+ Year Treasury Bond Fund (NYSEArca: TLT).

The underlying Barclays index includes all publicly issued, U.S. Treasury securities that have a remaining maturity greater than 20 years, are nonconvertible, are denominated in U.S. dollars, are rated investment grade—at least “Baa3” by Moody’s or “BBB-” by Standard and Poor’s—are fixed rate, and have more than $250 million par outstanding.

Excluded from the index are certain special issues, such as targeted investor notes, U.S. Treasury inflation-protected securities, and coupon issues that have been stripped from assets already included.

In addition to owning U.S. Treasury bills, TTT can invest in derivatives and swaps as a substitute for directly shorting debt, according to the fund’s prospectus.

One of the most significant risks of investing in this fund is that it has an approach to investing in derivatives that may be considered aggressive. As such, TTT may be exposed to dramatic changes in which losses may exceed the amount invested in derivative investments.

As noted, another potential risk is that due to the mathematical compounding that occurs during periods of higher volatility, the ETF’s returns could vary greatly from three times the inverse return of the index.


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