Understanding ProShares' Long-Term Performance
Understanding Long-Term Performance | Performance | NAV vs. Closing Price
ProShares are designed to provide either 200%, -200% or -100% of index performance on a daily basis (before fees and expenses).
A common misconception is that ProShares should also provide 200%, -200% or -100% of index performance over longer periods, such as a week, month or year. However, ProShares' returns may be greater than—or less than—what you’d expect over longer periods.
The hypothetical example below demonstrates how ProShares' long-term returns may be different than what you'd expect:
Fund XYZ seeks to double the daily performance of Index XYZ. On each day, Fund XYZ performs in line with its objective (200% of the index’s daily performance). You might expect that over the entire five-day period, the fund’s total return would be double that of the index, but that’s not the case. For the entire period, Index XYZ gained 5.1% while Fund XYZ gained only 9.8%.
| Index XYZ | Fund XYZ | |||
|---|---|---|---|---|
| Level | Daily Performance | Daily Performance | Net Asset Value | |
| Start | 100.0 | $100.00 | ||
| Day 1 | 103.0 | 3.0% | 6.0% | $106.00 |
| Day 2 | 99.9 | -3.0% | -6.0% | $99.64 |
| Day 3 | 103.9 | 4.0% | 8.0% | $107.61 |
| Day 4 | 101.3 | -2.5% | -5.0% | $102.23 |
| Day 5 | 105.1 | 3.7% | 7.4% | $109.80 |
| Total Return | 5.1% | 9.8% | ||
This is due to several factors, but a significant one is index volatility and its effect on fund compounding. In general, periods of high index volatility will cause the effect of compounding to be more pronounced, while lower index volatility will produce a more muted effect.
To demonstrate this point, let’s compare Fund XYZ from the previous example to the less volatile (and also hypothetical) Fund ABC, designed to double (200%) the daily performance of Index ABC.
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Fund ABC: Less Volatile
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Fund XYZ: More Volatile
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At left, the steady uptrend of Index ABC led to a compounding effect (magnified gains upon gains) in Fund ABC that more than doubled the index’s return (10.4% vs. 5.1%). At right, the more volatile Index XYZ led to magnified fund gains and losses, producing less than 200% (9.8% vs 5.1%).
(Remember, you can’t invest directly in an index, and hypothetical fund performance does not reflect fund fees and expenses.)
In the end, ProShares are designed to accomplish their objectives on a daily basis. As a result, you shouldn't expect ProShares to provide 200%, -200% or -100% of index performance over longer periods.
If you're interested in more details about ProShares' long-term performance, please see the description of correlation risk in the ProShares prospectus. Also, you can download the ProShares statement of additional information for a deeper discussion of the factors that affect ProShares' long-term performance, including a tool that estimates one-year fund performance based on index behavior.
A fund could be designed with a benchmark that uses a time period longer than one day (for instance, a week, a month or a year), but index volatility and its effect on compounding will create a similar effect over multiple periods, regardless of their duration.
2008-800Investing involves risk, including possible loss of principal. ProShares entail certain risks, including aggressive investment technique, inverse correlation and market price variance risks, all of which can increase volatility and decrease performance. In addition, ProShares are not diversified investments, and narrowly focused investments typically exhibit higher volatility and may be more susceptible to single issuer risk than a more diversified fund.
Carefully consider the investment objectives, risks, and charges and expenses of ProShares before investing. This and other information can be found in the prospectuses. Read the prospectus carefully before investing. For a ProShares ETF prospectus, visit www.proshares.com and seek advice from your financial adviser or broker dealer representative. Financial professionals can also call 866-PRO-5125.2008-800