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Huge Distributions At ProShares - Features.

Shareholders in the various ProShares inverse and double-inverse funds received a pre-Christmas gift of the unpleasant kind. The article linked above from Index Universe lists the cash distributions made by 35 of ProShares ETFs ranging from 4.1% to 44.3% of the previous day’s NAV (December 22). The distributions will be paid in cash and are fully taxable as (mostly) short term capital gains. It appears no warning was given of the timing or amount of distributions, so many shareholders will be hit with a pretty healthy tax bill on gains they may not have earned.

Two weeks ago Rydex funds announced distributions of up to 86% on their inverse funds. I wrote about it here. The Index Universe article from that event that I used as a source opined that the ProShares inverse funds would not have distributions as large as the Rydex funds. Well, they were not as large but I doubt that is much consolation to the holders of the 20 ETFs that had distributions of 20% or greater.

Recently there has been discussion on whether heavy trading the double and double-inverse ETFs are a cause to the recent extreme volatility in the markets. My article on the discussion is here. I think the underlying lesson in this is that the leveraged ETFs should be used for short term trading only and there are pitfalls for the unaware investors in these products.