Leveraged exchange traded funds (ETFs) are taking center stage of the industry as one of the fastest-growing segments.
Although investor sentiment is generally moving away from these high performance products, they’re being offered at a faster and faster rate, reports Eric Uhlfelder for Financial Times.
ProShares led the pack when they first introduced the leveraged funds in June 2006. By the end of January 2008, Paul Mazzilli for Morgan Stanley says there were around 60 leveraged and inverse funds on the market. And soon, there will be a line of ETFs offering three times returns.
The primary concern about taking these funds mainstream is that leveraging is an institutional concept that causes retail and individual investors to take substantial risk, especially during these volatile times. If you decide to get involved, you need to be aware of the risks.
Leverage is not a new concept, and according to the Investment Company Institute, the U.S. mutual fund industry group more than 70% of closed-end funds of the $315 billion net worth category use leverage. ETFs use leverage in about 30-35% of funds.
Today, investors can go long or short on just about any area of the market, including currencies, sectors, commodities and bonds.
If you’d like to try long/short ETFs, just be sure to have your exit strategy in place, because long and short ETFs can experience big swings.
Among the many funds to choose from:
- Market Vectors Double Short Euro (DRR)
- Market Vectors Double Long Euro (URR)
- DB Commodity Double-Short (DEE)
- DB Commodity Double-Long (DYY)
- Rydex Inverse 2x S&P 500 (RSW)
- Rydex 2x S&P 500 ETF (RSU)
- ProShares UltraShort Lehman 7-10 Year Treasury (PST)
- ProShares Ultra Basic Materials (UYM)
Read the disclosure, as Tom Lydon is a board member of Rydex Funds.