The EFZ ETF is an inverse exchange-traded fund that seeks results opposite to the daily movement of the MSCI EAFE Index. It uses the performance of developed-market stocks outside the US and Canada to respond to downside risk.

It suits investors who want to manage short-term downside risk in non-US developed-market equities and who understand its daily objective and the potential for higher volatility.

This is a passively managed (index-tracking) ETF operated by ProShares.

This product is designed to seek investment results opposite to the daily change in the MSCI EAFE Index. Rather than directly holding the stocks in the index, it builds its exposure through a combination of financial contracts such as swaps, and it adjusts its positions to maintain the daily objective.

• An inverse structure focused on responding to declines in developed-market equities
• Daily target exposure built through derivative contracts such as swaps

Assets under management (AUM) stand at $9.1M, and the total expense ratio is 0.95% per year.

Because the EFZ ETF has a daily objective, the longer the holding period, the more important it becomes to consider how market volatility and daily adjustments affect cumulative performance.

The performance of an inverse product is highly sensitive to the direction and volatility of the MSCI EAFE Index. It can work against investors when the index is rising, and when declines and rebounds repeat, the cumulative effect of daily adjustments can cause results to differ by holding period.

Interest in inverse products may grow when demand for risk avoidance in non-US developed-market equities rises. However, because this product is built on a daily objective, investors should review their holding purpose and monitoring frequency alongside fund flows.

It is characterized by a daily inverse structure that responds to declines in developed-market stocks, but the predictability of cumulative results can decline when it is held for the long term.

In the table, the SQQQ ETF provides inverse exposure to the Nasdaq 100 Index and the SOXS ETF provides inverse exposure to the semiconductor sector, so their volatility characteristics may differ. The SH ETF focuses on declines in the S&P 500 Index, the PSQ ETF on the Nasdaq 100 Index, and the SPXU ETF on the S&P 500 Index, so their target regions and degree of inverse leverage differ from the EFZ ETF. The products in the table also differ in size and fee levels, so investors should first determine whether they want to hedge US equities or non-US developed-market equities.

When considering the EFZ ETF, first confirm that you want exposure to non-US developed markets, that it fits a short-term hedging purpose, and that its daily objective can differ from long-term cumulative performance. It is also wise to review the nature of its distributions and its cost burden.

Because this product targets the opposite of the index's daily performance, its long-term cumulative return can differ from a simple inverse expectation. Overseas market currency and policy changes, derivative counterparty risk, and shifts in market liquidity are also major risks to consider.

The EFZ ETF can be understood as a tactical tool for responding to downside risk in developed-market equities outside the US and Canada. Rather than a long-term directional investment, it is more appropriate to decide whether to use it after reviewing its daily objective, the cumulative effect over the holding period, its distribution structure, and its costs.