Reuters has some details on the new funds, which are set to debut very soon:
The request to list ForceShares Daily 4X US Market Futures Long Fund, under the ticker UP, and ForceShares Daily 4X US Market Futures Short Fund, under the ticker DOWN, was filed by Intercontinental Exchange Inc’s NYSE Arca exchange.
One of the funds is designed to deliver 400 percent of the daily performance of S&P 500 .SPX stock index futures, while another fund will aim to deliver four times the inverse of that benchmark. That means a fund could go up 8 percent on a day the index it tracks falls by 2 percent.
Double and tripled leveraged funds have been around for several years, but these new issues represent a whole different level of leverage available to investors. As ZeroHedge notes, citing Themis Trading, the inherent risks in these products are apparent:
And while we await the first quintuple (and more) leveraged ETF, below – in case anyone really needs it – is a series of red flags and risk factors surrounding the ETF as flagged previously by our friends over at Themis Trading, and taken straight out of the ForceShares Trust Form S-1:
the Sponsor has no experience operating commodity pools
the Sponsor is “leanly staffed” and “relies heavily on key personnel to manage trading activities”
the success of a Fund depends on the ability of the Sponsor to accurately implement its trading strategies, and any failure to do so could subject the Fund to losses.
the Sponsor may have conflicts of interest, which may cause them to favor their own interests to your detriment…the Sponsor’s principals, officers or employees may trade futures and related contracts for their own accounts.
the Sponsor has limited capital and may be unable to continue to manage the funds if it sustains continued losses
the failure or insolvency of the Custodian for a Fund could result in a substantial loss of the Fund’s assets.
the Funds are not registered investment companies, so you do not have the protections of the 1940 Act.
So, could a quintuple or even ten-times leveraged ETF be on the way as well? If there’s investor demand for it, history has shown that issuers will step up to the plate to provide it.