There are at least certainties tied to leveraged exchange traded funds. First, many investors like these fast-moving, volatile products.
That much is highlighted by the $596 million that flowed into the ProShares UltraShort 20+ Year Treasury (NYSEArca: TBT) last year. Or the $487 million and the $226.5 million pulled in by theDirexion Daily Gold Miners Bull 3X Shares (NYSEArca: NUGT) and the Direxion Daily Small Cap Bear 3X Shares (NYSEArca: TZA).
The second certainty is that leveraged ETFs are not intended for consumption by all investors. These products are best suited for active, risk-tolerant traders, something that both ProShares and Direxion, the two largest issuers of leveraged of inverse and leveraged ETFs, do a good job of explaining to investors on their web sites. [2014’s Best Leveraged ETFs]
A new crop of ETFs modestly leveraged ETFs from Direxion looks to meet investor demand while significantly reducing the negative effects of daily compounding over longer periods, allowing for longer holding periods for the investor.
On Wednesday, Direxion, the second-largest issuer of inverse and leveraged ETFs, will introduce four ETFs that are leveraged to the tune of 1.25, not the double or triple leverage investors have become accustomed to.