ProShares Ultra MSCI Emerging Markets (EET)

ProShares Ultra MSCI Emerging Markets (EET) is a leveraged exchange-traded fund that aims to deliver twice the daily return of the MSCI Emerging Markets index, a broad portfolio of large and mid-cap stocks from developing economies across Asia, Latin America, Eastern Europe, and Africa. Like all leveraged ETFs, it resets daily, meaning its multi-year return will diverge from the index in proportion to market volatility — the trade-off a trader accepts for the magnified daily exposure.

“Leverage works both ways, twice as fast — up and down.”

EET sits in a niche market of tactical traders who bet on near-term moves in emerging-market equities. Emerging markets themselves represent about one-third of global equity capitalization, with the heaviest weights in China, India, Taiwan, Brazil, and Mexico — companies in semiconductors, financials, energy, and consumer goods. The MSCI Emerging Markets index, EET’s benchmark, is a float-adjusted, liquidity-weighted snapshot of that universe, rebalanced quarterly and reconstituted annually.

The fund’s leverage mechanism is straightforward: ProShares uses derivatives (mostly equity index futures and index swap contracts) to amplify the daily return of the underlying index by a factor of two. When the MSCI Emerging Markets index rises 1 percent in a day, EET aims to rise 2 percent; when it falls 1 percent, EET falls 2 percent. That 2x ratio is reset daily at market close, which means EET holds a mathematically fresh leverage position each morning.

This daily reset is the critical detail that separates leveraged ETFs from a simple loan-funded portfolio. Over periods longer than a few days, the daily-reset mechanics cause tracking error to compound in favour of volatility drag — a phenomenon called volatility decay. In a sideways market with big daily swings, even if the index returns zero over a month, a 2x leveraged fund will typically show a small loss. A long holder of EET in a choppy emerging-market cycle incurs this drag continuously. The fund is therefore built for active trading, not passive accumulation.

EET’s annual expense ratio is competitive by leveraged standards, though still higher than the unleveraged iShares MSCI Emerging Markets ETF. Trading volume and bid-ask spreads are tight; the fund has billions in assets under management, making it liquid enough for institutional and retail day traders alike. The fund distributes all capital gains and dividends quarterly, and like all leveraged ETFs, it holds no short positions of its own — the leverage is entirely synthetic, held on the instrument side.

The real risk is not to a daily trader but to the investor who buys and holds. In a two-year emerging-market bull market with average daily volatility, EET will underperform a 2x return through daily rebalancing drag alone. Worse, a sustained bear market will accelerate the portfolio’s decline faster than the index, wiping out capital proportionally faster. The prospectus explicitly warns that EET is unsuitable for longer than a few weeks of holding, yet many retail investors buy it mistaking it for a simple index fund.

A second risk is leverage itself: when emerging markets fall sharply, margin calls and redemptions can force ProShares to sell into falling markets, amplifying moves. The 2008 financial crisis and the March 2020 volatility spike both exposed the forced-selling problem in leveraged ETF complexes, though regulatory and structural improvements since then have made severe dislocations less likely.

EET is best understood as a trading instrument for professionals timing weekly or daily moves in emerging-market sentiment. It is widely used by systematic momentum traders and vol-decay traders willing to accept the daily-reset mechanics. For buy-and-hold investors seeking emerging-market exposure, the unleveraged broad-based emerging-market index ETF is a far simpler and more economical choice.

The fund carries no unique concentration risk beyond what the MSCI Emerging Markets index itself carries — chiefly, its heavy tilt toward China and India, which together represent roughly 40 percent of the portfolio weight. Sector-wise, the index is tilted toward technology, financials, and consumer goods, making EET’s earnings and valuations sensitive to global tech cycles and credit spreads in developing economies. A widening of risk spreads or a sharp dollar appreciation — both common in emerging-market downturns — will pressure the index and EET alike, only faster for EET.

Researching EET means reading the prospectus, watching the daily NAV and premium/discount to net asset value, and understanding the mechanics of derivatives rebalancing. For a trader, backtesting a leveraged strategy over periods that include both trending and choppy markets is the only way to validate whether the daily reset will work as intended. The fund’s goal is simple and achievable day to day; its true test is whether a trader’s conviction in emerging-market direction can overcome the drag that time itself inflicts on leverage.