Leveraged ETFs Are Some Of The Professional Trader’s Favorite Tools (FAS, FAZ)
“Leveraged ETFs are one of the most controversial trading instruments to be introduced in recent years. Many financial experts criticize leveraged ETFs as being too complicated and too risky for the retail investor. But leveraged ETFs are some of the professional trader’s favorite tools — and who doesn’t want to be on the same side as the smart money? The way these ETFs accomplish their objectives is a big part of the controversy. They usually don’t own or short stocks. Instead, they use options, swaps and other derivatives to deliver outsized returns,” Todd Shriber Reports From Investing Answers.
Shriber goes on to say, “Because leveraged ETFs are bundles of derivatives, investors cannot buy and hold them the way they do plain vanilla ETFs. Derivatives have a time value portion that decays as each day goes by. And because the leveraged ETF portfolio needs to be constantly rebalanced, expenses can really eat into investor returns. In fact, there are documented examples on the SEC web site of a leveraged ETF that produced negative returns even when the index it tracks moved up. That’s the bad news.”
“The good news is that when used properly, meaning over short-term time frames, leveraged ETFs can be a great tool for nimble investors who want to generate some quick profits. With that in mind, let’s have a look at some of the most popular sector-specific leveraged ETFs. Direxion Daily Financial Bull 3X Shares (NYSE: FAS) & Direxion Daily Financial Bear 3x Shares (NYSE: FAZ). Even if you’re not intimately familiar with leveraged ETFs, you’ve probably already heard about FAS and FAZ. Both ETFs track the (Russell 1000 Financial Services index) and both ETFs were front and center during the financial crisis that started in 2008,” Shriber Writes.
“(NYSE:FAS) has an expense ratio of 0.85% and (NYSE:FAZ) expenses check in at 0.95%, meaning neither are cheap by the standards of traditional ETFs. But both ETFs are highly liquid, averaging daily volume of about 77 million shares between the two of them. Here’s a great historical example of how powerful or problematic these ETFs can be: When the financial crisis reached its apex in late 2008, (NYSE:FAZ) gained 65% from November 5 to November 18, while (NYSE:FAS) lost 45% over the same period,” Shriber Reports.
Here are some more details on the Direxion Shares Daily Financial Bull 3X ETF (NYSE:FAS) and the Direxion Shares Daily Financial Bear 3x ETF (NYSE:FAZ) below:
Direxion Shares Daily Financial Bull 3X ETF (NYSE:FAS) VISIT OUR FAS CATEGORY: HERE
The Financial Bull 3X Shares seeks daily investment results, before fees and expenses, of 300% of the price performance of the Russell 1000® Financial Services Index (“Financial Index”). There is no guarantee the fund will meet its stated investment objective. The Russell 1000® Financial Services Index is a capitalization-weighted index of companies that provide financial services. As of April 30, 2008, the Index had 227 components, derived from the Russell 1000 Index with an average market capitalization of over $11 billion dollars and a median market capitalization of $4.4 billion dollars. One cannot directly invest in an Index.
Direxion Shares Daily Financial Bear 3x ETF (NYSE:FAZ) VISIT OUR FAZ CATEGORY: HERE
The fund seeks daily investment results, before fees and expenses, of 300% of the inverse of price performance of the Russell 1000 Financial Services index. The fund normally creates short positions by investing at least 80% of net assets in financial instruments that, in combination, provide leveraged and unleveraged exposure to the index. It is nondiversified.