What RWM Shorts

The ProShares Short Russell2000 (RWM) is designed to deliver the inverse (opposite) of the daily performance of the Russell 2000 Index. This index tracks approximately 2,000 small-capitalization U.S. companies.

RWM achieves this inverse exposure through the use of financial derivatives like swaps and futures contracts. It resets its position daily, meaning it is intended to track the inverse return for a single trading day only.

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 performance, especially in volatile markets.
• Compounding Risk: The daily rebalancing can lead to compounding effects, which may erode returns over time, even if the underlying index trends in the expected direction.
• Small-Cap Volatility: The Russell 2000 is more volatile than large-cap indices, amplifying potential losses if the market moves against the short position.
• High Expense Ratio: At 0.95%, the fund's costs are high for an ETF and can significantly detract from returns over time.
• Counterparty Risk: The fund's use of derivatives exposes it to the risk that its swap or futures counterparties may default on their obligations.

Best Use Cases

• Tactical Hedging: Used by investors to hedge against short-term declines in a small-cap portfolio over a single day or a few days.
• Bearish Speculation: For sophisticated traders with a strong conviction that U.S. small-cap stocks will fall in the near term.
• Portfolio Diversification: Can provide a temporary, negatively correlated exposure to balance a portfolio heavily weighted toward small-cap stocks.

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Frequently Asked Questions