A lawsuit seeking class-action status against ProShare Advisors, sponsor of the ProShares ETFs was filed in early August.
The complaint, filed by New York-based Labaton Sucharow, alleges ProShares violated securities law and didn’t properly disclose all risks associated with its UltraShort Real Estate ETF (SRS) in its prospectus and registration filings with the Securities and Exchange Commission.
SRS is designed to deliver double the daily inverse performance of the Dow Jones U.S. Real Estate Index. Over longer time periods, however, it’s failed to do so. This is not unusual though, because the impact of index volatility, tracking error and fees compounded over time often causes the longer-term performance of such funds to deviate from daily index returns.
The one-year performance through June 30th, 2009 for the Dow Jones U.S. Real Estate Index is negative 42.59 percent. Over the same period of time, SRS has fallen by 79.73 percent. Currently, SRS has around $1.2 billion in assets.
The lawsuit is another dramatic turn in a series of recent events that has seen leveraged and short ETFs come under fire.