Short Emerging Markets ETF

Considering the high beta nature of the Emerging Markets, it seems feasible there would be plenty of investor interest in an Inverse or Short Emerging Markets ETF products. All of these products are volatile and should be used by experienced traders, they are not suitable for long term investors.

Unleveraged Short Emerging Markets ETF

EUM - ProShares Short MSCI Emerging Markets is an unleveraged ETF that is designed to provide inverse daily investment results before fees and expenses correlating to the performance of the MSCI Emerging Markets index. Since Inverse funds tend to attract traders, this fund is not as popular as it's big brother EEV with an average trading volume of only 100,000 and net assets of $259 Million as of 10/19/2010.

Annual Total Expense Ratio = .95% (95 Basis Points)

It does do a very good job of delivering "short term" inverse correlation as you can see by the following chart comparing it to EEM. However, over the life of the product this is not the case as EEM is actually down 8% and the inverse (which theoretically should be up) is down over 50%.

EUM Performance Since Inception VS. EEM

Double 2X Short Emerging Markets ETF

EEV - ProShares UltraShort MSCI Emerging Markets ETF is designed to provide 200% inverse daily investment results, before fees and expenses, of the performance of the MSCI Emerging Markets index. As with other leveraged ETF products this is to be considered a trading vehicle and not for long term investors. This ETF is the most popular Short Emerging Markets ETF with traders and has the highest trading liquidity.   In fact, during the sharp stock market fall in the fall of 2008 this first double short ETF was one of the most spectacular performers tripling in price between May and October.

Annual Total Expense Ratio = .95% (95 Basis Points)

As of 10/19/2010 net assets were $172 Million with average daily trading volume of 617,831 shares so it's the most liquid Short ETF concentrating on the Emerging Markets.

Looking at the historical performance of EEV you can see that it worked well during the sharp decline in the emerging markets in 2008 but has been all downhill ever since as emerging markets have retraced much of their earlier losses. With this fund too you can see the long term flaws, even though EEM is down 8% over the 2 year period EEV which in theory should be up 16% appears to be down 90% or more.

EEV Performance Since Inception VS EEM

Chart begins on EEV first trading date 10/30/2007

Triple 3X Short Emerging Markets ETF

EDZ - Direxion Daily Emerging Markets Bear 3X ETF was designed to deliver daily investment results, before fees and expenses, of 300% of the inverse (or opposite) of the price performance of the MSCI Emerging Markets index.  This ETF along with other Direxion Triple Leveraged funds has become a favorite tool of short term traders including day traders.

Annual Total Expense Ratio = .95%  (95 Basis Points)

As of 10/19/2010 Net Assets were $148 Million dollars and average daily trading volume was just over 1 million shares per day making this a very liquid trading vehicle.

In the chart below you can see how it has performed in relation to EEV - the 2x inverse ETF.  As you can see, regardless of which one you are in they both perform about the same over time if you buy and hold them.

EDZ Performance Since Inception VS EEV

Chart begins on the first trading day of EDZ - 12/17/2008

If you are using these ETFs how they are supposed to be used however, you can see they perform just as they are supposed to providing 2x and 3x the daily price moves.

Here is EDZ compared to EEV on an hourly price chart, you can see that the moves are the same but simply magnified when using EDZ (3x) instead of EEV (2x).

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This chart shows the degree of inverse correlation between EDZ and the benchmark EEM on an hourly chart.

As you can see by these examples both ETFs accomplish their objectives in the short term despite their horrible long term performance.  That is why I say over and over, these leveraged ETFs are best suited for short term traders not for long term investors.