“The ProShares Ultra FTSE China 25 Fund (XPP) delivers twice the return of the FTSE China 25 Index. The FTSE China 25 is an index that follows the performance of the largest 25 Chinese stocks. [It’s] the Chinese equivalent of the Dow Jones Industrial Average, a measure designed to reflect the performance of the largest stocks in terms of market capitalization and liquidity.
“The Index limits its components to a maximum weighting of 10%. Right now, the main components of the FTSE China 25 are China Mobile, China Construction Bank, CNOOC, Industrial and Commercial Bank of China, Petrochina, China Petroleum & Chemical, China Life Insurance, China Telecom, China Unicom Hong Kong and China Shenhua Energy. That’s a high level of exposure to Chinese banks, with telecoms coming in second. But the real advantage of selecting the FTSE 25 as the basis for this investment is that these companies are ideally suited to appeal to large, institutional investors, mutual funds, hedge funds and private equity types who need stocks that can accept big buys and big sells.
“The advantage of the ProShares Ultra FTSE China 25 Fund is that it gives us a leveraged exposure to the performance of China. The risk of the leveraging is balanced by the relatively conservative nature of the underlying stocks.
“XPP was trading at 82 in April 2011, and had corrected to 72 in July when the wheels came off. The issue dropped steeply in August, eventually bottoming at 34 in early October. After working its way back to 60 in February 2012, the stock put in a nice 16-week base that started on May 18 with support near 40 and ended when XPP lifted off on twice-normal volume on September 13. The liftoff that began in August pushed XPP to 67 as 2013 began. A normal correction has pulled it back a few points, offering a good entry point. ... XPP is a strongly bullish bet on assets that many investors are still leery of, so the potential for big gains is high. BUY.”
Paul Goodwin, Cabot China & Emerging Markets Report, January 17, 2013
