ProShares Trust Short MSCI EAFE (EFZ) seeks to deliver daily investment results that correspond to the inverse (-1x) of the daily performance of the MSCI EAFE Index, which measures the equity market performance of developed markets in Europe, Australasia, and the Far East, excluding the U.S. and Canada.
How It Works
EFZ uses derivatives including swaps, futures contracts, and short positions to achieve inverse exposure to international developed markets. The fund rebalances daily to maintain its -1x target, meaning it aims to gain 1% when the MSCI EAFE Index falls 1%. As an actively managed inverse ETF, it does not hold the underlying international stocks but instead uses financial instruments to create synthetic short exposure to approximately 900 developed market companies across 21 countries.
Key Features
- Provides inverse exposure to international developed markets, allowing investors to profit from or hedge against European and Asian equity declines
- Daily rebalancing maintains precise -1x inverse correlation, making it effective for short-term tactical positioning against international markets
- Covers 21 developed countries including Japan, UK, France, and Germany, offering broad geographic diversification in bearish positioning
Risks
- This ETF can lose value if international developed markets rise, with losses potentially exceeding gains due to daily compounding effects over multiple days
- Daily rebalancing causes path dependency where volatile sideways markets erode value even if the underlying index returns to starting levels
- Currency fluctuations between the U.S. dollar and foreign currencies can amplify or reduce returns beyond the intended inverse relationship
Who Should Own This
Best suited for sophisticated traders with high risk tolerance seeking short-term (hours to days) tactical hedging against international developed market exposure or speculative bearish positioning. Requires active monitoring and should represent no more than 5-10% of portfolio. Unsuitable for buy-and-hold investors due to daily reset mechanics and compounding decay.