ProShares Switches Indexes for Two Europe ETFs

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ProShares is easily the most popular purveyor of leveraged and inverse ETFs. The company has 130 such funds in total, and all of its top ten products are utilizing some form of leverage or are following an inverse index.

While many of their most popular funds target domestic indexes or bond markets, the company also has a wide offering in the foreign market as well. This includes Europe where ProShares currently has two funds giving investors exposure to the region, the ProShares UltraShort Europe ETF (EPV) and the ProShares Ultra Europe ETF (UPV).

The two have seen widely divergent levels of popularity with much more interest being seen in EPV, the short product. This fund has seen over $100 million in AUM and solid levels of volume, while UPV has failed to gain any level of traction with investors (read Poland: A Better Eastern Europe ETF?).

Still, both are relatively new having made their debut in April of 2010, so the jury is still out. This is especially true given a recent change to both funds which could impact their exposure profiles going forward.

Index Change

Up until recently, both of the funds were tracking levered versions on a daily basis of the MSCI Europe Index, a broad benchmark of stocks on the continent. However, ProShares recently announced that both funds would now be tied to the FTSE Developed Europe Index instead.

Ticker symbols will remain the same though, while so will the expense ratios on both products. However, names will change, as previously both had included ‘MSCI’ in their titles. Beyond that though, nothing will be different, suggesting that the biggest shift is in the exposure profiles (see Three European ETFs with Incredible 2012 Gains).

What does this mean?

Before, EPV and UPV were tracking an index which held about 460 companies in total. Exposure was heavily concentrated in large caps, while value stocks made up about 50% of the portfolio.

Country exposure saw the UK take the top spot at 25% of assets, while France (15%), Switzerland (12%), and Germany (12%), rounded out the top four. In terms of sectors, financials were the biggest with 22%, while consumer staples and energy rounded out the top three.

Now, the funds will track a FTSE index that is the basis for the unleveraged counterpart of VGK. This extremely popular fund follows many of the same companies in similar proportions, but there are some slight differences to be aware of.

First, there are about 30 less stocks in this index’s basket, so exposure could be a bit more concentrated. Growth stocks also take a plurality of assets, though value isn’t far behind (also read Play Europe with This ETF Pair Trade).

In terms of sectors, financials and consumer staples again take the top two spots, but health care takes number three for the FTSE index, while financials account for just 19% in the benchmark. Countries also show a slightly different dispersion, as the UK makes up 30% of assets in this benchmark, followed by Switzerland (15%), France (14%), and Germany (13%).

Bottom Line

Clearly there are some differences between the old and new benchmarks, but they aren’t too great overall. Yes, there are a few more growth stocks and more British exposure, but by and large the old and new indexes are quite comparable.  

Furthermore, both UPV and EPV are really the only games in town for leveraged or inverse leveraged exposure to Europe (on a daily basis) at this time. So, even if investors don’t really care for the change, there isn’t much that can be done; best to adjust to this new FTSE benchmark if you are thinking about making a levered bet on Europe with ETFs.

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