Posted on 07/31/2009 6:19:53 AM PDT by shove_it
Recent trends in leveraged ETFs read a lot like the time-line for the swine flu. For years the public has heard warnings from people who many dismissed as crackpots that it was only a matter of time before a strain of the flu morphed into a highly contagious virus causing a pandemic. Then the swine flu strain emerged this spring, and municipalities across the country and the world finally took the threat seriously. Once one municipality put certain guidelines into effect, others were quick to follow.
There has been a similar evolution in the world of leveraged ETFs. Since the introduction of so-called triple leveraged ETFs late last year, we, along with others, have been highlighting their negatives and inefficiencies. While they are only meant to track daily price changes, many investors hold onto them for more than a day, and that's where the problems arise. The triple leveraged Financial sector ETFs from Direxion offer a perfect example. The chart below shows the YTD performance of the 3X bullish (FAS) and the 3X bearish (FAZ) ETFs through July 16th. In a period when the Financial sector is down 2%, not only is the 3x bearish ETF down, but with a decline of 88%, it is also down more than the leveraged long ETF! So even if you correctly anticipated the direction of the Financial sector at the start of the year, you would have lost your shirt if you used these ETFs to implement your strategy. Even more telling is that even though these ETFs are supposed to move in opposite directions, earlier this month both of them announced reverse splits.
[...]
(Excerpt) Read more at seekingalpha.com ...
Triple leveraged. I guess quadruple and quintuple make sense once you go that far. This market is being held up, in large part, by this imaginary money IMO. Not good.
I wouldn’t touch one of those with my fireplace tongs.
Me neither.
Uh, how would we know? The government lies so much.
However, if you shorted the short you would have made a nice profit. That’s the only way to play with these scam products.
Translation for the laymen in the audience: ETF stands for Exchange Traded Funds.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.
