Skip to main content

Investors bullied out of leveraged ETFs at exactly the wrong time

Saturday's Wall Street Journal has an article titled "Investors Pull $2.1 Billion out of Leveraged ETFs." What's going on?

The article says assets in ETFs increased by $20.1 billion in August but declined in only two asset classes: leveraged and inverse ETFs.

The article goes on to discuss how the Securities and Exchange Commission and the Financial Industry Regulatory Authority have issued warnings that leveraged ETFs may not be suitable for all investors. These warnings have been especially targeted at retail investors.

The SEC and FINRA, however, aren't the only ones pointing fingers at leveraged ETFs. Let's see how many ambulance chasers have initiated class action lawsuits against the ProShares company:
This list is the result of a quick search on Google and doesn't include any litigation against the folks who bring you the Direxion 3X leveraged ETFs. There are probably more lawsuits in the works out there.

With lawyers and government agencies ganging up on the providers of leveraged ETFs it's no wonder that many investors are pulling back from using these funds.

Unfortunately, this has been exactly the wrong time. As we discussed in earlier posts (here, here and here), 2X leveraged ETFs work quite well in strongly trending markets. Since the March lows, we have indeed had strongly trending markets in the bullish direction and the benefits have accrued to almost every sector. This scenario is the best time to be in leveraged long ETFs yet the frenzy around the warnings and lawsuits has driven many investors away from these vehicles.

As we have written before (here and here), taking a few simple precautions and riding a trend can lead to superior results using the 2X leveraged ETFs. It is unfortunate that "educating investors" doesn't extend beyond scare tactics.

Dislosure: long ROM and USD
Labels:

Comments

Post a Comment

Popular posts from this blog

Trade Radar gets another update

Some of our data sources changed again and it impacted our ability to load fundamental/financial data. In response, we are rolling out a new version of the software: 7.1.24 The data sourcing issues are fixed and some dead links in the Chart menu were removed. So whether you are a registered user or someone engaged in the free trial, head over to our update page and download the latest version. The update page is here:   https://tradingstockalerts.com/software/downloadpatch Contact us if you have questions or identify any new issues.
Post a Comment
Read more

Unlock Stock Market Profits - Key #4

This is the fourth article in a series of posts describing 10 tools to help you identify and evaluate good investing ideas. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. ( Click here to read the original post ) With this fourth post, we will continue another step along the path of finding stocks that seem to have some potential. The first post in the series discussed how to use unusual activity to identify investing ideas. The second post described how to use stock screeners. The third post described how to use lists of new highs and new lows. This post will focus on identifying social or business trends in order to find investing ideas. Information on new trends might turn up anywhere. In conversation with friends or business associates, in newspapers or magazines, on TV or though your work. The key is to be aware of trends and how they start, stop or change. We'll start by describing what...
6 comments
Read more

Pick 'o the Month - a two'fer

Usually I focus on a single smaller, more obscure stock. In this case, I would like to submit two stocks, a large-cap, Cisco Systems ( CSCO ), and a small-cap, Big Band Networks ( BBND ). These two stocks embody a resurgence in the network infrastructure space. That theme is what ties these two picks together. With the rising tide of video, music and movies downloaded over the Internet and cable companies offering bundled TV, phone and Internet, we have finally absorbed the glut of network capacity created during the Internet bubble. This deluge of multimedia is changing service providers’ business models, and the ways they manage and develop networks. The focus now is on how to move, manage and monetize content that is richer and more complex than ever before. In response, as telecommunications companies ramp up newer, faster networks to handle all this traffic, Cisco Systems is a prime beneficiary. As the dominant player in network infrastructure, it has already seen profits begin to...
1 comment
Read more