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ProFunds short ETFs offer downside protection for Chinese and Japanese markets

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ProFunds Group, the largest US provider of short and magnified exposure indexed funds, has launched two new short international exchange-traded funds offering investors protection against

ProFunds Group, the largest US provider of short and magnified exposure indexed funds, has launched two new short international exchange-traded funds offering investors protection against declines in the Chinese and Japanese stock markets. The launch brings the number of ProShares funds to 58 with USD9bn in assets.

The two ETFs provide investors with a convenient way to hedge gains or to seek profit from downturns in the Chinese and Japanese markets. Following the addition of four other short international ProShares funds over the past few weeks, they bring the total of short exposure ETFs to 35.

Both funds are designed to deliver twice the inverse of the daily performance of their underlying indices. The UltraShort FTSE/Xinhua China 25 seeks to deliver twice the inverse of the daily return of the FTSE/Xinhua China 25 Index, while the UltraShort MSCI Japan targets double the inverse of the daily return of the MSCI Japan Index.

‘We anticipate strong investor interest in a simple and easy way to get short exposure to the Chinese equity market,’ says ProShares chairman and chief executive Michael Sapir. ‘With the FTSE/Xinhua China 25 Index having appreciated by nearly 600 per cent in the past five years, there is a great deal of talk of a potential for a Chinese ‘bubble’.

‘The ProShares UltraShort FTSE/Xinhua China 25 ETF can be used by investors to seek to hedge a portfolio with China exposure from losses or to pursue gains from a falling Chinese market.’

Although Chinese equities have risen sharply in recent years, they have shown significant volatility. For instance, in late February this year the index dropped 9 per cent in a single day on fears that the government was moving to crush speculation in stocks. As a result, even those investors who still believe in China’s long-term prospects may be interested in hedging against short-term volatility or seeking profit during dips.

Based in Bethseda, Maryland, ProShares is part of the ProFunds Group, which manages assets totalling USD16.8bn in investment vehicles including more than 60 ProFunds mutual funds.

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