Your Guide to the UltraPro Short Dow30 (SDOW) 3x Leveraged Inverse ETF
Hedge Against Declines, But Know the Risks
The UltraPro Short Dow30 (SDOW) is an inverse-equity, exchange-traded fund (ETF) that's designed to be held for one-day periods and work as a tool to aggressively offset the movements of the Dow Jones Industrial Average (DJIA). As of April 2, 2020, it's year-to-date daily total return was 43.51% and its net assets totaled $299.45 million.
Investors looking to hedge against stock market declines can hold the SDOW for one day, although the ETF's expense ratio—and the risks associated with inverse ETFs—may make it a poor choice to hold any longer than one day.
Facts About Inverse ETF SDOW
|UltraPro Short Dow30|
|Index Tracked||Dow Jones Industrial Average (DJIA)|
|ETF Category||Inverse ETF and Leveraged ETF|
|Inception Date||Feb. 9, 2010|
What Is the UltraPro Short Dow30 SDOW ETF?
The ProShares UltraPro Short Dow30 (SDOW) ETF aims to produce daily returns that correlate to -3x the daily performance of the Dow Jones Industrial Average (DJIA). This means it's looking for results that are 3x the inverse of the DJIA in one day—which is pretty fast compared to what the average investor may be used to. It is both a leveraged and inverse exchange-traded product that may not be right for every investor.
Leveraged and inverse ETFs may not be right for the average investor. There are high risks involved in trading inverse and leveraged investment products. While 3x the returns could mean a larger payout, it can just as easily mean a larger loss. Take the time to truly understand market conditions and strategies before investing in these types of products.
The single-day returns of this ETF are measured from one net asset value (NAV) calculation to the next. These daily returns compound and that means the returns over a period of time won't necessarily be the same as those single day results.
For example, SDOW tracks the DJIA but in the opposite (inverse) direction. As the DJIA decreases in value, SDOW increases in price. It also seeks a 3x leveraged return on the underlying index. SDOW targets triple the daily return of the index, in the opposite direction.
In March 2020, the DJIA dropped to historic levels, entering a bear market. Because the DJIA decreased, SDOW, an inverse ETF, increased in price. But while SDOW had a year-to-date daily total return of 43.51% as of April 2, 2020, it's important to look at how it has performed over time to understand the risk. As of the same date, its three-year daily total return was -26.27%. If the DJIA increases, SDOW will decrease in price.
In order for SDOW to execute an inverse and leveraged return on the DJIA, it utilizes derivatives such as swaps as well as some other assets and cash in its holdings.
Daily Holdings in UltraPro Short Dow30 SDOW
The following securities are the daily holdings in the UltraPro Short Dow30 SDOW ETF as of April 2, 2020. These holdings are subject to change at ProShares' discretion.
- DJ Industrial Average Swap Societe Generale
- DJ Industrial Average Swap Bank of America, NA
- DJ Industrial Average Swap Morgan Stanley & Co. International Plc
- DJ Industrial Average Swap Citibank, NA
- DJ Industrial Average Index Swap BNP Paribas
- DJ Industrial Average Swap UBS AG
- DJ Industrial Average Swap Credit Suisse International
- DJIA Mini 6/19/2020 (DMMO)
- DJ Industrial Average Goldman Sachs International
- SPDR Dow Jones Industrial Average (DIA) Swap Goldman Sachs International
- U.S. Treasury Bills
- Net Other Assets/Cash
The Bottom Line
It's important to be disciplined in your selection process of any exchange-traded product, especially leveraged and inverse ETFs. While ETFs and ETNs offer a lot of advantages, they are not without risk. No asset is risk-free. So be sure to research any exchange trade products on this list before making any trades.
Look under the hood and see what is in the ETF. Take a look at its performance history and see how it reacted to different market conditions. If you have any questions or concerns, be sure to consult a financial professional such as a financial or investment advisor.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.