More recently, state regulators are suing RBC Capital Markets LLC due to the dishonest practices in the sale of leveraged and inverse exchange traded funds. The regulators contend that both the investors and the agents soliciting investments did not fully understand the inner workings of these funds. After the initial probes into leveraged and inverse ETFs back in July 2009, money managers have begun to place training requirements on agents who advised on these types of products.
The real lesson here isn’t necessarily that leveraged and inverse ETFs are bad tools that investors should avoid. On the contrary, they’re useful in certain situations and for certain types of investors. But even the providers plainly state that they are not for everyone.
Available Inverse/Leverage ETF and ETN Options
Inverse and leveraged funds offer exposure to bonds, commodities, currencies, equities and real estate assets. Currently, there are around 316 leveraged ETF options and 241 inverse ETFs.
Leveraged and inverse fund products utilize financial engineering techniques, such as swaps, derivatives, futures contracts and rebalancing, to achieve their desired investment goals.
Since most leveraged and inverse ETFs gain exposure to their underlying indices through different investment instruments, it’s important to know the tax implications; investors are urged to discuss this with their tax expert.
Direxion and ProShares are prominent and prolific fund sponsors of leveraged and inverse ETF products. Their products cover most sectors and broad indices in the equities markets, both domestic and international, along with 2x/3x long/short exposure to the benchmark indices.
ProShares, Market Vectors and PowerShares provide leveraged/inverse funds for the Japanese yen, European euro and U.S. dollar.
PowerShares also has a line of leveraged or unleveraged long/short commodity ETFs.
These fund providers also offer leverage/inverse fund products tailored for various U.S. Treasuries and international Treasury bonds.
Barclays iPath provides a large line of exchange traded note (ETN) debt instruments designed with leveraged exposure in either bullish or bearish directions.
FactorSares, a recent entrant to the leveraged ETF game, has launched a line of leveraged bets that track the spread between two major indices.
Our ETF Analyzer page helps visitors screen for the available leveraged or inverse ETF options currently listed. Potential investors may want to head to our ETF Resume page to take a look up funds and browse an ETF’s prospectus sheet.