Leveraged ETFs are powerful and complex trading instruments that allow traders to magnify the return on investment. While higher returns are an attractive proposition, investors need to realize that losses are magnified too. Thus, these ETFs need to be handled with care.
Leveraged ETFs deliver the desired returns over prespecified periods only (usually one day). A leveraged ETF that offers 2x exposure to the S&P 500 only attempts to do so over one-day holding periods. Investors looking to hold these ETFs for significantly longer time periods can often find themselves losing money even if the underlying benchmark behaved as expected.
With 133 ETFs traded in the U.S. markets, Leveraged ETFs gather total assets under management of $37.71B. The average expense ratio is 1.08%. Leveraged ETFs can be found in the following asset classes:
- Asset Allocation
- Fixed Income
The largest Leveraged ETF is the ProShares UltraPro QQQ TQQQ with $8.35B in assets. In the last trailing year, the best performing Leveraged ETF was the FNGU at 345.98%. The most-recent ETF launched in the Leveraged space was the ETRACS Quarterly Pay 1.5X Leveraged Wells Fargo BDC Index ETN BDCX in 06/02/20.