Posted on August 15, 2009 - by Martin Lee

Be Careful of Leveraged and Inverse ETFs

Leveraged and inverse ETFs have in recent months come to the attention of US Regulators regarding their suitability as long term investments for retail investors.

Just to recap, leveraged ETFs aim to double or triple the performance of an underlying benchmark, while inverse ETFs move in the opposite direction to their benchmark.

In theory, that is.

ProShares is one of the largest issuer of leveraged and short ETFs. The leveraged ones are easily identifiable by the word Ultra in front of the name while the inverse will have the word Short. There are also ETFs that are both leveraged and inverse. These will have the word Ultrashort.

The ProShares list of ETFs can be found here.

In reality, these ETFs may not always move in the direction that investors expect. If held for a longer term, some of these ETFs can lose big even when an investment in the underlying benchmark would have gained due to how the ETFs are structured. Read more…

Related posts:

1. Concerns on ETFs
2. 5 Myths About ETFs – Part 3
3. Shopping For Stocks