Some market observers are also growing concerned over leveraged and inverse ETFs. While the geared ETFs implement more sophisticated structures, the funds are not a danger to the markets.
These geared ETFs try to reflect a leveraged or inverse prospective of a given market on a daily basis, which means that they reset returns on a daily basis. Consequently, due to the compounding effects of the daily resets, these ETFs may not perfectly reflect their target leveraged or inverse strategies over the long-term. [What The SEC Derivative Proposal Means for Leveraged & Inverse ETFs]
A few observers have been warning everyone that these geared funds are adding to market volatility. However, leveraged and inverse ETFs only make up a tiny portion of the overall market. ETFs have about $2 trillion in assets under management, but leveraged and inverse ETFs account for $30 billion in assets under management, or less than 2%. [Will The SEC Cause Backlash for Leveraged/Inverse ETFs?]
Max Chen contributed to this article.