Leveraged and inverse exchange traded fund products are gaining traction as hedging tools among the investment community. Nevertheless, those interested in the investment tool should understand how they work before diving in.
ETF Trends’ Tom Lydon recently sat down with Andy O’Rourke, Chief Marketing Officer at Direxion Funds, to discuss growing usage and acceptance of geared products.
“Those that understood [leveraged/inverse ETFs] and used them actively… lot of evidence that shows that they were using them properly,” O’Rourke said.
Specifically, these geared tools try to reflect the daily returns of a given leveraged or inverse target. Consequently, due to the compounding of daily returns, these ETFs’ overall performance in a prolonged period can differ from the specified target, especially during volatile markets.
Leveraged and inverse ETFs “seek their objective on a daily basis, rather than a traditional, plain vanilla ETFs that seek long term goals,” O’Rourke added.
Watch the video below to see the full interview with Andy O’Rourke.
To view past video interviews, visit our video section.