There are some risks here. If short-term interest rates increase, the notes may lose value, even if the underlying index of the note does well. Since leverage borrows money, if interest rates increase, the leverage costs more to borrow. Additionally, ETN investors are subject to credit risk of the issuing bank.
These funds are an interesting idea that may be appealing to investors vexed by compounding, and we’ll be watching to see if this is indeed how they operate.
For more information on leveraged funds, visit our leveraged ETFs category.
Max Chen contributed to this article.
