ETF Spotlight - EUO - A Short Euro ETF

A Profile on EUO

Euro Currency

For investors who want to play the Euro against the US Dollar, foreign currency ETFs such as EUO might be a good way to accomplish this strategy. However, the unique feature of EUO is that it is an inverse fund and plays to the short side of the USD vs the Euro. But be sure to realize that the Net Asset Value (NAV) is calculated on a daily basis. An important distinction.

And there are a few reasons an investor may want to play to the short side...

  • To Hedge Against Declines
  • To Seek Profit from Declines
  • To Capitalize on Underweighting of a Market Segment

The other significant feature of EUO is that is also a leveraged fund, in this case, a 2x leveraged ETF. So again, the daily return is calculated on a 2x basis.

The counterpart to EUO (the leveraged but non-inverse fund) is ULE, the ProShares Ultra Euro ETF. But for now, here are the details for EUO...

Ticker: EUO

Name: Ultra Short Euro ProShares ETF

ETF Provider: ProShares

Asset Tracked: EUR / USD Daily Price Change

Category: Currency ETF, Leveraged ETF, Inverse ETF

Description: EUO, the Ultra Short Euro ProShares ETF, tracks twice the inverse price performance of the EUR / USD daily price change. The fund invests in assets such as forwards and cash to achieve its goal.

Due to the compounding of daily returns, ProShares' returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period.

These effects may be more pronounced in funds with larger or inverse multiples and in funds with volatile benchmarks. Investors should monitor their holdings consistent with their strategies, as frequently as daily.

As for the benchmark, the Euro expressed in US Dollars is known as the cross rate and is provided by Bloomberg.

The cross rate is expressed as the amount of US Dollars that can be exchanged for one Euro.

Inception Date: November 24th, 2008

ETF Lists That Include EUO

As with any investment, a company stock, an ETF, Index or otherwise, please make sure you thoroughly research this exchange traded fund or any financial asset before making any trades (long or short). Conduct your due diligence, watch how BBP reacts to different market conditions, take a look under the hood and see what is in the fund. And if you have any questions or concerns, make sure you consult a broker, a financial advisor, or another financial industry professional.

While ETFs have many advantages, they have many disadvantages as well (as does any investment). So it is very important to understand the investment vehicle before you trade it. But once you have a full understanding on BBP, you can consider adding it to your portfolio. And good luck with all of your trades!

Disclaimer: At the time of publication of this ETF spotlight, I do not have any open positions in BBP - Mark Kennedy