ETF Trends – Leveraged Long/Short Funds Arriving Shortly

    ProFunds has won long-awaited approval of its proposed leveraged exchange-traded funds.

In
doing so, the shop has become the first firm to gain approval to launch
ETFs that use leverage to exceed positive and negative returns of
indexes. In addition, it is the first shop to gain approval of ETFs
that are structured to perform the opposite of specified indexes.

ETF trackers, meanwhile, say the funds should appeal to a variety of
different types of investors. In that regard, they should prove to be
popular, says Tom Lydon, president of Global Trends Investments.

“Leveraged mutual funds have been very popular,” he says. “And that popularity should transcend to ETFs.”

He points out that firms that offer leveraged mutual funds such as ProFunds, Rydex and Direxion
(formerly Potomac) have enjoyed steady fund sales. That’s been driven,
in part, by investors’ beliefs that the equity markets will gain only
modest returns. Investing in funds that seek to earn one and a half or
twice the returns of an index is one way to rev up returns, he adds.

At
the same time, the market has been moving upward over the past few
years, so some investors may be expecting a market decline, or
correction. Those investors may be attracted to ProFund’s bearish ETFs.

“They
will appeal to investors expecting a market correction,” Lydon says.
“The timing for ProFunds may be quite right for them.”