Good post on Zero Hedge about leveraged ETFs with two major conclusions: 1. They are being used by retail investors; and 2. At least some of these investors are using them as buy and hold investments as if they were index funds, which they most certainly aren’t- this makes me wonder if they are being mis-sold.
It is worth quoting a couple of conclusions:
1. ‘If investors hold the leveraged ETF for extended periods (and it seems that this is more common than I previously thought) their returns may not be what they expect. The total return of a leveraged ETF may differ significantly from what a typical investor might expect based on the movement of the underlying asset.’
You do not have double the return over the period, you get double the daily return, which can be very different. If you don’t immediately understand that point and you are invested in leveraged or inverse ETFs you are playing with fire.
2. ‘Ignoring the costs, which are higher than other investments (leverage has a cost as does the more frequent rebalancing).’
So much for ETFs as low cost transparent investments.