More Beta in Leveraged ETFs


Michael L. Sapir, chairman and CEO of ProShares' investment advisor, ProShare Advisors LLC, said in the release: "Many savvy investors believe that taking advantage of tactical allocation opportunities will be the key to successful investing in the near term. These new ETFs provide knowledgeable investors with additional tools to act on short-term moves in popular U.S. indexes."

"Knowledgeable investors," is an important concept with this type of ETF. Leveraged ETFs require more attention than an unleveraged directional bet on beta. In fact, levered ETFs have recently drawn media and regulatory scrutiny, in part because longer-term returns have not always tracked with longer-term returns on the underlying indexes. ProShares carries a note in its release explaining that that leveraged ETFs can be more volatile and that this type of ETF, "seeks a return that is a multiple or inverse multiple (e.g., -200%) of the return of an index or other benchmark (target) for a single day." The note advises investors in these types of ETFs to monitor them frequently--daily--and that compounded daily returns "will likely differ in amount and possibly direction from the target return for the same period."

Comments? Please send them to Kate McBride is editor in chief of Wealth Manager and a member of The Committee for the Fiduciary Standard.

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