The Securities and Exchange Commission brought good news for ETF risk-lovers on Tuesday by approving the first quadruple leveraged ETF. With this, Forceshares Daily 4x US Market Futures Long Fund (UP) and Forceshares Daily 4x US Market Futures Short Fund (DOWN) will likely see the light of day, as per the source (read: Will New SEC Rules Hurt Triple Leveraged ETFs?).
So long, up to triple-leveraged ETFs have been common in the investing world. But these two new products, designed to deliver 400% regular/opposite the daily performance of the S&P 500, are expected to open up a new horizon in leveraged investing.
How Big is the Leveraged ETF Industry?
Leveraged ETFs have lately gained popularity with the overall growth of the ETF industry. As per xtf.com, there are over 130 U.S.-listed leveraged ETFs with an aggregate market cap of $26.66 billion and average expense ratio of 1.17% (read: Bet on ETF Industry's Growth with This Fund).
ProShares Ultra S&P500 ETF (TO:SSO) , which looks to track the daily investment results, before fees and expenses, corresponding to twice the daily performance of the S&P 500, has amassed the largest asset base of $1.89 billion (read: ETF Asset Report for April 2017).
These products are always meant for investors with a strong stomach for risks. A fund that provides 2x the exposure will rise by 2% if the benchmark increases by 1%. The opposite also holds true. If the index drops by 1%, the ETF will lose 2% (read: An Investor's Guide to the 10 Most Popular Leveraged ETFs).
On the other hand, an inverse leveraged ETF bets against the positive movement of the underlying index. As a result, a quadruple approach can understandably be riskier for investors, as well as gainful too. Investors should note that leveraged products are suitable only for short-term traders as these are rebalanced on a daily basis (see: all the Leveraged Equity ETFs here).
Any Competition?
There seems to be no competition for Forceshares Daily 4x US Market Futures Long Fund and Forceshares Daily 4x US Market Futures Short Fund as these revolve around the new concept.
However, since there is no dearth of leveraged ETFs tracking the S&P 500 with SSO, Direxion Daily S&P 500 Bull 1.25x Shares LLSP, Direxion Daily S&P 500 Bull 2x Shares SPUU, ProShares UltraPro S&P500 ETF (MCX:UPRO) and Direxion Daily S&P 500 Bull 3x Shares SPXL around, the fund may face difficulties in amassing investor interest. The fund is particularly less likely to be popular among investors with low risk-taking power (read: 5 Best Performing Leveraged ETFs of the Bull Market).
On the other hand, Forceshares’ inverse ETF may face some threat from the likes of UltraShort S&P500 ETF (V:SDS) , UltraPro Short S&P500 ETF SPXU and Direxion Daily S&P 500 Bear 3x Shares ETF SPXS.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>
DIRX-LC BULL 3X (SPXL): ETF Research Reports
PRO-ULSH S&P500 (SDS): ETF Research Reports
PRO-ULTR S&P500 (SSO): ETF Research Reports
PRO-ULT S&P500 (UPRO): ETF Research Reports
DIR-D SP5 2X BL (SPUU): ETF Research Reports
PRO-ULT SH S&P5 (SPXU): ETF Research Reports
DIR-D SP5 BR 3X (SPXS): ETF Research Reports
DIRX-D SP5 B125 (LLSP): ETF Research Reports
Original post
Zacks Investment Research