ProShares UltraShort Basic Materials (SMN)

ProShares UltraShort Basic Materials (NYSE Arca: SBS)

Profile

Focus: SBS is an exchange-traded fund (ETF) that seeks daily investment results, before fees and expenses, that correspond to -2x the daily performance of the Dow Jones U.S. Basic Materials Index. This means it aims to deliver twice the inverse (opposite) daily performance of the index. The index tracks the performance of publicly traded companies in the basic materials sector of the U.S. stock market.

Asset Allocation: SBS invests in financial instruments that track the performance of the index, primarily through swap agreements.

Investment Strategy: SBS employs a leveraged investment strategy. This means it uses borrowed funds to amplify the potential returns of the underlying index. The fund seeks to achieve its objective by daily entering into a swap agreement with a counterparty. The agreement obligates the counterparty to pay the fund an amount based on the performance of the index each day. The fund invests the proceeds from the swap agreement in U.S. Treasury obligations.

Objective

The primary investment goal of SBS is to provide short-term, inverse exposure to the performance of the Dow Jones U.S. Basic Materials Index. This means that if the index declines in value, the ETF aims to deliver a return that is twice the decline, and vice versa.

Issuer

ProShares

Reputation and Reliability: ProShares is a prominent ETF issuer with a strong reputation in the financial industry. It offers a diverse range of ETFs covering various asset classes and investment strategies. The firm has a track record of managing ETFs with significant assets under management.

Management: The ProShares management team comprises experienced professionals with expertise in investment management and ETF development.

Market Share

SBS holds a small market share within the inverse basic materials ETF category. However, ProShares, as a whole, holds a significant market share in the overall ETF industry.

Total Net Assets

As of November 9, 2023, SBS has total net assets of approximately USD 56 million.

Moat

Leveraged exposure: SBS offers leveraged exposure to the basic materials sector, potentially amplifying returns compared to traditional non-leveraged ETFs.

Inverse strategy: SBS caters to investors seeking short-term, inverse exposure, allowing them to profit from anticipated declines in the basic materials sector.

Financial Performance

Historical Performance: SBS has delivered positive returns in periods when the Dow Jones U.S. Basic Materials Index declined. Conversely, during periods of market rallies in the sector, SBS has experienced negative returns.

Benchmark Comparison: Compared to the Dow Jones U.S. Basic Materials Index, SBS generally delivers amplified returns in the opposite direction. However, due to the compounding effect of leverage and fees, its long-term performance may deviate from the index.

Growth Trajectory

The growth trajectory of SBS is highly dependent on the future performance of the basic materials sector and investor demand for inverse exposure.

Liquidity

Average Trading Volume: SBS has a moderate average trading volume, indicating sufficient liquidity for most investors.

Bid-Ask Spread: The bid-ask spread for SBS is relatively low, suggesting minimal trading costs.

Market Dynamics

Market dynamics impacting SBS include:

• Economic indicators: The performance of the basic materials sector is influenced by economic factors such as commodity prices, global economic growth, and infrastructure spending.
• Sector growth prospects: Investor sentiment and expectations for future growth within the basic materials sector play a significant role.
• Current market conditions: Market volatility and overall investor risk appetite can affect the demand for leveraged and inverse investment strategies.

Competitors

Key competitors of SBS include:

• Direxion Daily Basic Materials Bear 2X Shares (NYSE Arca: MBN)
• ProShares Short Basic Materials (NYSE Arca: BNO)

Expense Ratio

The expense ratio for SBS is 0.95%. This covers management fees and other operational costs.

Investment Approach and Strategy

Strategy: SBS employs a leveraged, inverse investment strategy. It aims to provide -2x the daily performance of the Dow Jones U.S. Basic Materials Index.

Composition: The fund primarily invests in swap agreements that track the index. It also holds U.S. Treasury obligations as collateral for the swap agreements.

Key Points

• Leveraged: Amplifies potential returns of the basic materials sector.
• Inverse: Aims to profit from declines in the sector.
• Short-term: Designed for short-term investment horizons.
• Moderate liquidity and low trading costs.

Risks

• Volatility: SBS is a leveraged product, making it more volatile than traditional non-leveraged ETFs. Its value can fluctuate significantly based on the underlying index performance.
• Market Risk: The fund is subject to risks associated with the basic materials sector, such as commodity price volatility, economic cycles, and industry-specific events.
• Counterparty Risk: The success of the fund's investment strategy relies on the performance of the swap counterparty.

Who Should Consider Investing

SBS is suitable for experienced investors with a high tolerance for risk seeking short-term, inverse exposure to the basic materials sector. Investors should carefully consider their investment objectives, risk tolerance, and investment horizon before investing in SBS.

Fundamental Rating Based on AI

Based on an AI-based analysis of the ETF's financials, market position, and future prospects, SBS receives a Fundamental Rating of 6.5 out of 10.

Justification: The rating considers the fund's leveraged strategy, moderate liquidity, and exposure to a specific sector. The rating acknowledges the potential for amplified returns and short-term gains but also recognizes the associated risks of volatility and market dependence.

Resources and Disclaimers

Data Sources:

• ProShares Website: https://www.proshares.com/
• Investment Company Institute: https://www.ici.org/
• Financial Times: https://www.ft.com/

Disclaimer:

• This information is for educational purposes only and should not be considered investment advice.
• Investing involves risk, and you could lose money.
• Past performance is not indicative of future results.
• Before investing, carefully consider your investment objectives, risk tolerance, and time horizon.
• Consult with a qualified financial advisor for personalized guidance.