The banner performance of many of the leveraged and inverse exchange traded funds (ETFs) have longtime leverage provider ProShares filing for 94 new funds with the Securities and Exchange Commission (SEC).
Triple leveraged ETFs have been popular with intrepid investors who want some extra turbo-boost in their portfolios. Murray Coleman for Index Universe reports that ProShares is requesting that the SEC allow it to provide up to 300% leverage and 300% inverse exposure to 37 different indexes. Supposedly, there are 94 ETFs total in registration, but the probability of all of those coming to market this year is in question.
The leveraged arena is not the same market as last year, as provider Direxion was first to up the ante and really juice up the leverage. This also put the two providers in an instant rivalry for market share. The recent filings are a direct response to ProShares wanting to gain back their share of the market.
Leveraged ETFs have been the subject of much debate lately, but for investors who know the rules and educate themselves, they can be a tool to hedge portfolios on a short-term basis.
As of April 14, the request included:
- Some 25 different domestic equity ETFs
- Another 62 international equity ETFs
- And seven bond ETFs
Here is a peek at the proposal:
Applicants seek to amend the Prior Order as described below. Applicants propose:
- To amend the term “Financial Instruments” defined in the Prior Applications to now include short positions (“Short Positions”) in the component securities comprising the relevant Underlying Indices, as defined below, (the “Component Securities”) for all Funds (as defined below);
- To expand the ability of each Fund designed to correspond to the return of its Underlying Index (each, a “Matching Fund”) (previously called a “Conventional Fund”) to invest at least 80% of its total assets (exclusive of collateral held for purposes of securities lending) in the Component Securities;
- To expand the category of Matching Funds to include Funds that seek to match the performance of an index that primarily is focused on U.S. equity securities and that applies a strategy commonly referred to as 130/30 (“130/30 Funds”);
- To permit Leveraged Funds to seek a specified multiple of the performance of, and Inverse Funds to seek a specified multiple of the inverse performance of, an underlying securities index without being limited to multiples of 125%, 150% or 200%, up to a multiple of 300%
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.