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

Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.