Inverse and Leveraged ETFs

What are exchange-traded funds (ETFs)?

ETFs are groups of different types of investments that are lumped together into a single entity which can then be traded on major stock exchanges and offer shares for investors to purchase. Because it trades like a stock, an ETF does not have its net asset value (NAV) calculated every day like a mutual fund does. ETFs experience price changes throughout the day as they are bought and sold.

What are leveraged ETFs?

Leveraged ETFs, also known as “bull” ETFs, seek to deliver multiples of the performance of the index or benchmark they track. While a traditional ETF tracks the securities in its underlying index on a 1:1 basis, leveraged ETFs typically aim for a 2:1 or 3:1 ratio. These are called double- and triple-leveraged ETFs, respectively.

What are inverse ETFs?

Inverse ETFs, also known as “short” ETFs or “bear” ETFs, seek to deliver the opposite of the performance of the index or benchmark they track. Inverse ETFs are sold as a way for investors to profit from, or at least hedge their risk from, downward moving markets.

What are leveraged inverse ETFs?

Leveraged inverse ETFs, or “ultra short” ETFs, seek to achieve a return that is a multiple of the inverse performance of the underlying index or benchmark.

Are ETFs considered mutual funds?

No. ETFs are unlike mutual funds, which are not traded on an exchange and only trade once per day after the markets close. Additionally, unlike mutual funds, ETF shares have limited redeemability.

How can you sell your ETF shares?

Investors who want to sell their ETF shares have two options: (1) they can sell individual shares to other investors on the secondary market, or (2) they can sell their units back to the ETF. ETFs generally redeem their shares by giving investors the securities that comprise the portfolio instead of cash.

Are ETFs a risky investment?

The SEC and FINRA have issued investor alerts because individual investors may be easily confused about the performance objectives of leveraged and inverse ETFs. Leveraged and inverse ETFs are typically designed to achieve their stated performance objectives on a daily basis, but investors may invest with the expectation that the ETFs will meet their stated daily performance objectives over the long term. ETFs use derivatives, swaps, and futures contracts to accomplish intended performance objectives and require a daily reset of the portfolio holdings which results in a tracking error over time.

Due to the tracking errors over time and the effects of leverage, the performance of an ETF can differ greatly from the performance of the underlying basket of securities, indexes, currencies, or commodities. Investors should be aware that performance of ETFs over a period longer than one day can differ significantly from their stated daily performance objectives.

What should you do if you believe you were defrauded by your investment in an exchange-traded fund?

If you believe you were defrauded by your investment in an exchange-traded fund, it’s advisable to have an experienced attorney review your case for wrongdoing.

Take the next steps to find out if you have a claim:

Step 1.

Talk to an Experienced Attorney Today

Call and speak to one of our attorneys* for a no-cost consultation to discuss your situation, answer your questions, and help you determine the next steps. This call usually takes about 15 minutes, but we are happy to talk to you as long as you would like!

Step 2.

Quick Review of Your Paperwork

If we think you might have a case, we will need to review a few basic documents. If we determine you have a case, then you will have the option to hire us as your attorneys to pursue it.

Step 3.

Signed Attorney/Client Agreement

If you decide to hire us to pursue your case, we will have you sign an attorney-client agreement so we can begin the process of trying to recover your losses.*

*In the vast majority of cases, our agreement is contingent – meaning you won’t owe us any money unless we recover money for you.


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