What EFZ Shorts

The ProShares Short MSCI EAFE (EFZ) is designed to deliver the inverse (opposite) of the daily performance of the MSCI EAFE Index. This index tracks large- and mid-cap stocks across developed markets in Europe, Australasia, and the Far East, excluding the U.S. and Canada.

EFZ achieves its goal primarily through short positions in EFA (the iShares MSCI EAFE ETF) or other derivatives like swaps and futures. It resets its exposure daily, making it suitable for short-term tactical positions.

Key Risks

• Daily Reset Risk: Holding periods longer than one day can result in returns that deviate significantly from the inverse of the index's cumulative return, especially in volatile markets.
• Compounding Risk: The daily rebalancing can lead to compounding effects, which may erode returns over time.
• Market Risk: If the underlying MSCI EAFE Index rises, the value of EFZ will decline.
• Counterparty Risk: The fund uses derivatives like swaps, exposing it to the risk that the other party in the contract may default.
• High Expense Ratio: At 0.95%, the cost of holding the fund can significantly impact net returns over time.

Best Use Cases

• Short-Term Hedging: Temporarily hedge a long portfolio of international developed market stocks against a potential downturn.
• Tactical Bearish Bet: Express a short-term, bearish view on developed international equity markets.
• Portfolio Diversification: Used strategically to reduce overall portfolio correlation to non-U.S. developed markets.

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Frequently Asked Questions