ProShares UltraShort Real Estate: ETF For REIT Pessimists

Short sale or shorting stock graphic 3D for stock market

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(This article was co-produced with Hoya Capital Real Estate)


A big question investors might be asking is, “Do REITs do well when inflation is very high?” so I went looking for answers to that potential question.

REITs are currently showing, based on FFO and NIO scores, that they are in a much stronger position today than they were during the GFC or COVID. The next chart shows how they have historically performed at different levels of inflation.

ProShares UltraShort Real Estate ETF Review

Seeking Alpha describes this ETF as follows:

The fund invests through derivatives in stocks of companies involved in mortgage real estate investment trusts (REITs), equity real estate investment trusts, finance, diversified finance and real estate sectors. The fund employs a short strategy and uses derivatives such as swaps to construct its portfolio. The fund aims to track -2 times the daily performance of the Dow Jones US real estate index. SRS was founded in 2007.

Source: SRS

SRS has $54 million in assets under management and charges investors 95 basis points in fees. A 25 bps fee waiver expires on 09/30/22. Unless renewed, the fee increases to 120 bps. SRS has not made a payout since March 2020. ProShares provides this description and warning on this type of ETF.

ProShares UltraShort Real Estate aims to return twice the return of its index (target) for a single day, measured from one NAV calculation to the next. Due to the compounding of daily returns, holding periods longer than one day may result in returns that vary significantly from the target return and ProShares returns over periods other than one day are likely to vary in magnitude and possibly direction from the target return over the same period. These effects can be more pronounced for funds with larger or inverse multiples and for funds with volatile benchmarks. Investors should monitor their holdings as often as daily. Investors should consult the prospectus for further details on how the returns and risks associated with investing in this product are calculated.

Source: SRS PDF

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Index Verification

As SRS holds derivatives based on the Index, this is the Dow Jones US Real Estate Index.

The Index is designed to reflect the performance of real estate investment trusts (REITs) and other companies that invest in real estate, directly or indirectly, through development, management or ownership, including real estate agencies.



There are no US ETFs based on this index, but the iShares US Real Estate ETF (IYR) uses the “capped” version of this index. I haven’t found a list (list) that breaks down the REITs into their subtypes, but I’ve added sectors based on what I know about each REIT. Here are IYR’s top 10 holdings, accounting for 42% of the portfolio.

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IYR Ticker; compiled by the author

Review of SRS holdings

SRS uses a series of index swaps to implement its strategy.

A index swap refers to a hedging contract in which a party exchanges a predetermined cash flow with a counterparty on a specified date. A debt, equity or other price index is used as the agreed exchange for one side of this swap.

Source: Swaps

SRS ticker

In order to spread the risk of default imposed by the use of SWAP contracts, SRS has spread its holdings across six major banks, including three internationally headquartered banks.

Verification of the SRS distribution


The two boxed “S” are reverse splits. The second occurred on May 21 when the ETF price fell below $10/share.

portfolio strategy

SRS data from YCharts

Since the 2008/09 global financial crisis when REITs soared, SRS has fallen almost 100%! Investors made money during this crisis and early COVID, the rest not so much, although SRS has fared well over the past 12 months as the REIT index fell almost 15%.

SRS data from YCharts

But please note that SRS investors are not up 30% (2X IYR loss), only up 16.37%. This is due to the daily 2X calculations and the warning mentioned by Proshares. Leveraged ETFs are good short-term plays if you have a good market timing model; the rest of us are probably better off putting the money under the mattress!

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Final Thoughts

For those who are negative but less negative or want less risk there is the ProShares Short Real Estate (REK) which is only 1X short. For those who are still positive about REITs, there is ProShares Ultra Real Estate (URE), which is 2x on the positive side of the same index. For the more aggressive investors, there are two 3X ETFs:

  • Direxion Daily Real Estate Bear 3x Shares ETF (DRV)
  • Direxion Daily Real Estate Bull 3x Shares ETF (DRN)

I’m proud to have asked to be one of the original Seeker Alpha contributors for the November 21st launch of the Hoya Capital Income Builder Marketplace.

Here is how HCIB sees its place in the investment universe:

Whether your focus is high yield or dividend growth, we offer you high-quality, actionable investment research and a comprehensive suite of tools and models to help you build portfolios that meet your unique investment goals. Subscribers get full access to our investment research — including reports not published anywhere else — in our areas of expertise, including equity REITs, mortgage REITs, builders, ETFs, closed-end funds, and preferred stocks.

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