2 Leveraged Equity ETFs For Higher Returns (But Also Added Risk)

 | Dec 13, 2021 04:33

Investors’ appetite for leveraged ETFs has been on the rise. By using leverage, such products provide the possibility of doubling or tripling daily returns that would typically be offered by an index.

In highlights :

“Leverage (borrowing to invest) is a way to increase potential returns for an investment, at the expense of increased risk. For a passive investor in the stock market, this can be achieved by taking margin loan from the brokerage, or buying leveraged exchange traded funds (LETFs). LETFs… are usually not recommended as long term investments due their decay during fluctuations (even when the index “fluctuates” around a constant value the LETF loses).”

Similarly, the US Securities and Exchange Commission has also typically “do not equal the target leverage times the index returns.”

With that information, we introduce two leveraged ETFs. For experienced readers who appreciate the potential risks they carry, such funds could be appropriate vehicles for executing daily trades. On a final note, most leveraged ETFs have high expense ratios, typically close to 1% a year.

1. ProShares Ultra MidCap400/h2
  • Current Price: $67.66
  • 52-week Range: $44.26 - $75.18
  • Expense ratio: 0.95% per year

Our first leveraged ETF focuses on US mid-capitalization (cap) stocks. The objective of the ProShares Ultra MidCap400 (NYSE:MVV) is to achieve a daily return that is 2x the return of the S&P Midcap 400 index, the underlying benchmark. The fund was listed in June 2006, and has about $187.5 million under management.