First 4X Products Debut In US

Today VelocityShares, a subsidiary of Janus Henderson Group, became the first firm to launch exchange-traded products offering 4X exposure with the rollout of a suite of 10 currency exchange-traded notes. The ETNs, all due on Dec. 15, 2032, list on the NYSE Arca and are as follows:

• VelocityShares Daily 4X Long USD vs. JPY (DJPY)
• VelocityShares Daily 4X Long USD vs. EUR (DEUR)
• VelocityShares Daily 4X Long USD vs. GBP (DGBP)
• VelocityShares Daily 4X Long USD vs. CHF (DCHF)
• VelocityShares Daily 4X Long USD vs. AUD (DAUD)
• VelocityShares Daily 4X Long JPY vs. USD (UJPY)
• VelocityShares Daily 4X Long EUR vs. USD (UEUR)
• VelocityShares Daily 4X Long GBP vs. USD (UGBP)
• VelocityShares Daily 4X Long CHF vs. USD (UCHF)
• VelocityShares Daily 4X Long AUD vs. USD (UAUD)

Each comes with a fee of 1.50%. They are backed by Citigroup.

The 10 ETNs represent variations on five pair of ETNs with the currencies for Japan, Europe, the United Kingdom, Switzerland and Australia. Five of the ETNs offer long exposure to the U.S. dollar relative to one of the targeted foreign currencies, while the other five offer long exposure to a foreign currency relative to the U.S. dollar.

Complicated History

When they appeared on the market nearly 10 years ago, ETFs offering 300% exposure to their underlying, introduced by Direxion, were somewhat controversial due to their volatility and whether investors understood what they were getting into. The SEC has expressed concerns about leveraged products on multiple occasions over the years.

Indeed, a class action lawsuit was filed by investors against ProShares, arguing the firm didn’t properly inform investors in its inverse and leveraged ETFs of the risks associated with those products. The suit was dismissed in 2012 on the grounds it was implausible the company could have known in advance that investors would lose money on its products.

The problem is the daily reset that is a key feature of most inverse and leveraged products. When investors first heard “200% leverage,” they assumed they would get twice the return of the underlying index, but the reality is more complicated. Erosion to returns is common and sometimes extreme.

Despite the mixed messages on extreme leverage, the SEC approved quadruple-exposure ETFs in the spring. However, the ForceShares have yet to launch, leaving VelocityShares room to claim the first-to-market title with an ETN wrapper.

Contact Heather Bell at [email protected]