the Trade-Radar + TradingStockAlerts blog

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: Gilman and Pastor LLP Files Class Action Lawsuit Against ProShares' UltraShort MSCI Emerging Markets ProShares Fund on Behalf of UltraShort Fund Investors Labaton Sucharow LLP Files Class Action Lawsuit Against ProShares' UltraShort Real Estate Pro...

As more brokerages prevent their customers (read: individual investors) from trading leveraged ETFs, I am moved to question the motivation of these firms. Thus far, we have UBS, Edward Jones, LPL Financial and Ameriprise Financial all banning trading of ETFs from ProShares and Direxion. Moreover, the Massachusetts chief financial regulator has announced an investigation of leveraged ETFs. Further stirring the pot, FINRA issued a warning that these ETFs are not suitable for investors who hold them for longer than one day. If they are held longer than a day they would only be appropriate if "closely monitored by a financial professional." The evidence against leveraged ETFs -- The beef against these ETFs is that you can get the call on a sector or index correct and still lose money. The examples used over and over again are the ProShares UltraShort Financial ETF (SKF) and the ProShares UltraShort Real Estate ETF (SRS). Despite the financial and real estate sectors taking a dive...