Extreme Investing – Leveraged ETFs and Funds

Most investors are happy simply matching or nominally exceeding the returns of the major market indices. For those willing to endure the risk commensurate with double the beta of indices or sectors, Bioderma there’s a tool out there for you. For a few years, I had tracked and briefly used the ProFunds mutual funds, which could double the return of say, the S&P500 or the Nasdaq; sector-wise, the internet index or commodities index. It’s nice getting a 70% return on a fund when the Nasdaq returned 35% that year. Conversely, it’s quite painful to lose half your principle in a low 20’s down year. Most of these funds had expense ratios of close to 2%. So in effect, you couldn’t get a perfect 2x return, but something slightly less, kind of like those 2 black spaces on the roulette wheel.

Now, there’s a similar tool out there from the same company, but with lower fees. ProShares offers essentially the same instrument, but now as an ETF instead of a mutual fund. bankdeets

Investment Strategies:

These instruments are not for the faint of heart. Obviously, with a 2x factor, your initial investment can be wiped out quite quickly. But you can also short the market without having to sell naked calls or buy puts which expire. I like shorting the market with a finite downside as opposed to selling shares I don’t own (those shorting AQNT the day the MSFT buyout with a 67% premium was announced are hurting now).

The general trend of the market over the long term is up, so I’d be taking long positions in the positive 2x direction, not the short side if holding for long periods, but the shorts do serve as a nice hedge tool when appropriate. If you want to hold say, 5% of your holdings in short positions, or want to play one sector off the other, they’re a great tool. For instance, let’s say you think the energy sector has moved way too far too fast, ddm but the biotech sector is undervalued. You can buy the 2x long on the biotech and buy the 2x short on the energy and capture the spread; or you can just hold a short position and unload during corrections.

Here is a snapshot of some sector offerings available:

Ultra Sector 24dollsde (2x return)

Ultra Basic Materials

Ultra Consumer Goods

Ultra Consumer Services

Ultra Financials

Ultra Health Care

Ultra Industrials

Ultra Oil & Gas

Ultra Real Estate realdetroitweekly


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