U.S. Investing

Gain Inverse Exposure to U.S. Small-Cap Companies

The ProShares Short Russell 2000 (RWM) exchange-traded fund (ETF) provides inverse exposure to a market-cap-weighted index of U.S. small-cap companies.

RWM offers a bet against the Russell 2000’s index of 2,000 small-cap firms that attract enough daily liquidity to make it a viable trading tool. The non-diversified fund uses both ETF and index swaps to achieve its inverse exposure.

As with most leveraged and inverse products, RWM is designed to provide its -1x exposure for the short term. Anyone holding it for longer periods will have their returns affected by the effects of compounding, which cause returns to drift away from the expected inverse exposure to the 2,000 small-cap stocks that comprise the Russell 2000 Index.

The fund is sufficiently popular to allow investors to use it for short-term tactical trading, with heavy daily trading activity and narrow spreads. Its fees are comparatively high for an ETF, though in line with other funds found in the inverse equity segment.

The ETF currently has more than $307 billion in assets under management and an average spread of 0.02%. It currently sits at just under $40 a share and has a 1.34% yield. With an expense ratio of 0.95%, it is more costly to hold relative to some other exchange-traded funds.

Chart Courtesy of Stockcharts.com

The ProShares Short Russell 2000 has an MSCI ESG Fund Rating of A, based on a score of 6.70 out of 10. The MSCI ESG Fund Rating measures the resiliency of portfolios to long-term risks and opportunities arising from environmental, social and governance factors. Highly rated funds consist of companies that tend to show strong and/or improving management of financially relevant issues.

While RWM facilitates the opportunity to profit at a time when the Russell 2000 Index is at risk for producing negative returns, inverse ETFs may not be appropriate for all portfolios.

As always, interested investors should exercise due diligence to decide whether the fund fits their individual investing goals.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Intelligence Report, Investing Edge, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.