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Investigation: ProShares UltraPro Short S&P 500 ETF (SPXU)

Fitapelli Kurta is investigating customer complaints and potential lawsuits related to broker recommendations of ProShares UltraPro Short S&P 500 ETF (SPXU), which is a short term inverse leveraged ETF.  ProShares UltraPro Short S&P 500 ETF (SPXU) is an extremely speculative and risky product, which is often misunderstood by the brokers who recommend its purchase.    Specifically, ProShares UltraPro Short S&P 500 ETF (SPXU) is designed to be held for only one day and we are interested in speaking to investors who lost money by holding the product for periods longer than one day.

ProShares UltraPro Short S&P 500 ETF (SPXU) is a type of ETF known as an “inverse, leveraged ETF.”  ETFs, or exchange traded funds, like mutual funds, offer investors an opportunity to pool their money into a fund that makes investments in a particular asset class (i.e. all utility stocks).  Unlike mutual funds, ETFs are traded on an exchange and at market prices.  The goal of ETFs, such as ProShares UltraPro Short S&P 500 ETF (SPXU), is to track a particular index or asset class.  Inverse ETFs are a type of ETF, which track the opposite of an index (i.e. when the market decreases these funds increase and vice versa).  Leveraged ETFs, such as ProShares UltraPro Short S&P 500 ETF (SPXU), are ETFs that use leverage so the tracking effect is multiplied.  So for example, an inverse 2X leveraged ETF should increase 2X the decrease of the index that it is tracking.

Inverse leveraged ETFs, such as ProShares UltraPro Short S&P 500 ETF (SPXU), “reset” daily, which means that they are designed to achieve their stated objectives (i.e. tracking an index) only on a daily basis and no longer than one day.  In fact the prospectus for ETFs, such as ProShares UltraPro Short S&P 500 ETF (SPXU), warns investors that if the ETF is held for periods longer than one day, returns will begin to differ from the underlying index.  It is possible, therefore for an index to be flat (i.e. returning a zero return), but the ETF that is held over the same period may be down considerably.

Brokers often market inverse leveraged ETFs, such as ProShares UltraPro Short S&P 500 ETF (SPXU), to clients as a way to hedge against market losses.  These brokers also recommend that ProShares UltraPro Short S&P 500 ETF (SPXU) be held for extended periods of time.  This advice is always inappropriate because products such as ProShares UltraPro Short S&P 500 ETF (SPXU) are not designed to be held for periods of longer than one day.  Thus holding securities such as ProShares UltraPro Short S&P 500 ETF (SPXU) makes little sense from an investment prospective – even its own prospectus will state this.

In a period where the overall market is thriving, brokers recommend ProShares UltraPro Short S&P 500 ETF (SPXU) as a long term “hedge” without really understanding the product.  ProShares UltraPro Short S&P 500 ETF (SPXU) should never be held for periods of longer than one day as doing so would be a reckless “strategy,” which could ultimately end in catastrophic losses.

Our firm has successfully prosecuted cases involving brokers that have recommended ProShares UltraPro Short S&P 500 ETF (SPXU).  If you or someone you know lost money investing in ProShares UltraPro Short S&P 500 ETF (SPXU), we are interested in speaking to you.