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Wednesday, June 21, 2006

Leveraged ETFs Get Up And Running

Reported by Neil Anderson, Managing Editor

Thanks to eight new funds, investors can now buy exchange traded funds that incorporate leverage.

After a long wait for SEC approval, four Ultra ProShares and four Short ProShares, from the creators of ProFunds, launched Wednesday morning at the American Stock Exchange. ProShare Advisors CEO Michael Sapir and president Louis Mayberg rang the exchange's opening bell, marking the new products' kickoff.

Applications for four additional leveraged ETFs were filed later and await final approval.

The eight new ETFs are: Short QQQ ProShares, which returns the inverse of the NASDAQ-100 Index; Short S&P500 ProShares, which returns the inverse of the S&P 500; Short MidCap400 ProShares, which returns the inverse of the S&P MidCap 400; Short Dow30 ProShares, which returns the inverse of the Dow Jones Industrial Average; Ultra QQQ ProShares, which returns double the NASDAQ-100; Ultra S&P500 ProShares, which returns double the S&P 500; Ultra MidCap400 ProShares, which returns double the S&P Midcap 400; and Ultra Dow30 ProShares, which returns double the Dow Jones.

Sapir bubbled over in his remarks at the ceremony.

"We at ProShares are thrilled to be here at Amex, the birthplace of ETFs," Sapir said.

Cliff Weber, senior VP of the Amex ETF Marketplace, echoed Sapir's enthusiasm.

"This is something we've been anticipating for a long time," Weber said afterwards in a press briefing. "We at the Amex are extremely excited."

Sapir said the new products represent a true departure for ETFs."This is the introduction of a new chapter of exchange traded funds," Sapir told the assembly. "For the first time, investors can short or magnify their exposure simply by buying an ETF."

Speaking to the MFWire before the ceremony, Sapir described the purpose of the new funds.

"We're trying to give investors more options. You can buy a stock and have a strategy," he said. "With the short ETFs, you can buy, be long, and you can short the market. With the ultra ETFs, you return double the market."

He expects the products to reveal untold potential. "They are tools to be used as part of a portfolio," Sapir explained. "But we suspect that investors will use these ETFs in ways that we haven't thought of."

"And unlike with margins," Mayberg added, "with these you don't have unlimited risk."

But Sapir noted ProShare's new leverage ETFs are not for everybody."We are not targeting mom and pop investors ... We think these ProShares will be very appealing for traders. They are fantastic tools for financial professionals." Sapir and Mayberg said they expect interest from hedge funds and institutional investors practicing hedging.

At ProFunds, "We have the largest lineup of indexed mutual funds of any mutual fund company in the country," Sapir said. "We see our ETF effort as being very central to our organization."

ProShares and Amex hope to team up again shortly to launch the next four ProShares ETFs. The Ultrashort funds are each intended to return double the inverse of their target indexes. According to Weber, the funds should launch within the next several weeks.

The statement announcing Wednesday's launch is here

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