New ETFs Turn Value Into Aggressive Growth
February was a big month for launching exchange-traded funds, with 53 new ETFs. Seven of them trade on foreign exchanges, with the remaining 46 listed on the NYSE, Nasdaq and American Stock Exchange.
ProShares introduced 12 more ETFs that employ 200% leverage by tracking six Russell indices. Half of the funds take the long side, betting that the underlying index rises. The other half play the short side, looking for a decline.
Officially, the Russell Investment Group separates the members of its Russell 3000 Index of U.S. companies into two groups. The 1,000 stocks with the largest market capitalization go into the Russell 1000 Index. The smallest 2,000 go into the Russell 2000 Index, considered a small-cap benchmark. The Russell Mid-cap Index includes the 800 smallest companies from the Russell 1000 Index.
In reality, due to corporate activities such as mergers, buyouts or bankruptcies, the 3000 Index has only 2,905 members, with 979 in the 1000 Index and 1,926 in the 2000 Index. Of the 979, Russell considers 776 of them to be mid-cap.The growth and value indices are constructed based on the price-to-book ratios and forecasted growth of the index members. Generally, higher price-to-book ratios and higher expected growth rates signify growth stocks. Lower financial statistics would imply value stocks. Surprisingly, of the 979 stocks in the Russell 1000 Index, 607 are members of the Russell 1000 Value Index and 678 are Growth Index members. At first glance, this doesn't add up. Russell Investment Group says that each stock has a probability of being growth or value. If the probability is 40% growth and 60% value, then the stock is allocated 40% to the growth index and 60% to the value index. About 30% of stocks have some portion in both value and growth indexes. The last bit of accounting magic is the use of leverage. These new ETFs use 200% leverage in an attempt to return twice the performance of the underlying indices. That results in the three value-oriented funds being classified as aggressive growth funds. The UltraShort funds are considered contrarian funds targeting gains twice the size of index losses. Maybe some day there will be an aggressive contrarian category with the UltraShort funds as charter members.
|New ProShares ETFs Play Both Sides of Russell Indices|
|Index Name||Ultra 200%||UltraShort -200%|
|Russell 1000 Growth Index||UKF||SFK|
|Russell 1000 Value Index||UVG||SJF|
|Russell MidCap Growth Index||UKW||SDK|
|Russell MidCap Value Index||UVU||SJL|
|Russell 2000 Growth Index||UKK||SKK|
|Russell 2000 Value Index||UVT||SJH|
|Source: American Stock Exchange|
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV