Exchange traded funds (ETFs) are one of the most popular investment tools, and hedge funds are picking up on them – especially the leveraged type.

That’s making some of the hedge funds more risky because these ETFs are not the type you bring home to your mother, as the volatility and risk within these funds can be more than many investors can handle.

Hedge funds are limited to betting against a sector, however.

Part of the reason leveraged funds have grown in popularity with hedge funds is that lenders have become more tight-fisted, and banks are more careful with their cash, making it harder for smaller funds to borrow money to boost the size of their trades, reports Gregory Zuckerman and Mara Lemos Stein for The Wall Street Journal.

These types of ETFs provide smaller and mid-size funds an effective way to get some leverage.

Tags: Sector ETFs