Many new exchange traded funds (ETFs) come in the short and leveraged variety, designed to help out educated investors. But the latest results have found that individual investors have had more trouble with leverage than anticipated, and many are saying that this type of strategy is best left to the experts.
MarketWatch reports that Morningstar Analyst John Gabriel said that key market events, such as limits on short-selling, have impacted a few funds, but have not changed the overall picture for ETFs. Risks of certain funds, such as the ProShares Ultra Short Financials (SKF) makes them issues that investors should avoid right now.
Gabriel also says that the market for exchange traded notes (ETNs) is scary right now, and that investors can get the same kind of exposure to some areas ETNs cover via an ETF instead, minus the credit risk.
We respectfully disagree on both counts. One of the great things about the ETF and ETN market is the wide range of choices and options offered to investors.
No ETF is one-size-fits-all. Investors need to decide for themselves what works with their portfolios and what doesn’t, and this is no less true with leveraged ETFs. Any kind of fund deserves careful consideration and use of caution. Leveraged funds and ETNs are merely another tool in the shed for investors.
As far as ETNs, while there is credit risk, this does seem to be under control right now.
No matter what you invest in or what your risk level happens to be, having a stop-loss point will protect you on the downside.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.