The Direxion Daily S&P 500 Bull 3X Shares (NYSEArca: SPXL), which generates the daily 300% performance of the S&P 500 Index, gained 118.9% in 2013, more than triple the S&P 500 index returns. However, during volatile conditions, such as in 2011, SPXL saw a negative 14.9% return, whereas the S&P 500 rose 2.1%.
The typical long-term investor should “avoid these things like the plague,” Morningstar fund analyst Michael Rawson, said in the article.
If an advisor or investor is comfortable with the potential risks of leveraged ETFs, he or she should fully understand how the products work.
Many brokerage firms and asset managers have already gotten their hands smacked by regulators after recommending leveraged ETFs without proper education. [Finra Fines Highlight Need for Increased ETF Education]
“The complexity of leveraged and inverse exchange-traded products makes it essential for securities firms and their representatives to understand these products before recommending them to their customers,” Finra chief of enforcement Brad Bennett previously stated.
For more information on geared products, visit our leveraged ETFs category.
Max Chen contributed to this article.