A long fund, such as the Ultra S&P 500, seeks to double the returns of the S&P 500. That means when the index goes up, your returns will double that.
If a fund looking to double the S&P has $100, then the fund will contain tools to give it roughly $200 exposure to the S&P.
And that exposure is gotten in much the same way: buying baskets of stocks that might give dollar-for-dollar exposure, along with futures contracts and swaps, which are inherently leveraged. This means that if you put down $1, you will get $1of exposure.
A short fund, such as the shorts or two beta, seek to provide either the opposite of the index, or twice the opposite. They can be a way to capitalize when the markets are heading south.
Shorts work in a similar way, with one key difference: no long positions are bought. Short funds also don’t short stocks. Instead, they primarily short futures contracts and swap agreements.
As it’s been said before, just be sure to use these products with caution – as much as they have potential to generate super-sized returns, they can leave a super-sized ding in your portfolio, too.
For more information on leveraged funds, watch this video over that The Wall Street Journal, as well.