Leveraged ETFs: So Misunderstood | Page 2 of 2 | ETF Trends

Regardless, retail investors make up a good chunk of those that utilize these investments and will have a significant impact on there future.

Meanwhile, the momentum against leveraged funds is gathering steam in Massachusetts, says On Wall Street. The state subpoenaed four brokers in order to get sales, revenue and training records. Those brokers are Ameriprise, UBS, LPL and Edward Jones, all of which in recent days have announced that they’re no longer selling those types of funds in response to FINRA’s warning. FINRA has since backed off its initial warning and noted that the funds can be appropriate for use by financial professionals.

Leveraged and inverse ETF providers all have addressed the issues and misperceptions about their funds that have cropped up in the last several months.

  • Direxion noted that there is no one holding period that’s universally appropriate for leveraged and inverse funds. The products can be held for days, weeks or even a month or more, depending on the market, the investor’s view and goals.
  • ProShares released their own study last month about the effects of compounding.

The bottom line is, before any investor chooses to buy these funds, they need to understand how they work. They’re not like other ETFs, but that doesn’t mean they’re bad. It’s also important to note that these funds are not for everyone, something even the providers have repeatedly stressed.

For more stories on leveraged and inverse ETFs, visit our long-short category.

Kevin Grewal contributed to this article.