Recently warnings from the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) siting the dangers of leverged ETFs and inverse ETFs (exchange-traded funds). These funds are extremely complex products that carry a great deal of risk. Soreide Law Group, PLLC, has launched an investigation into these funds.
It is noted that ETFs are investments that track an underlying benchmark or index, similar to a traditional mutual fund. Unlike mutual funds, non-traditional ETFs trade throughout the day on securities exchanges like stocks. Over the last several years, ETFs have become more common, but also more complicated. So rather than track underlying benchmarks, some non-traditional ETFs have been designed to multiply or return the opposite of a given benchmark.
Leveraged ETFs use futures or derivatives to multiply the daily return of a given index, such as the S&P 500. Some ETFs try to double or even triple the daily return. Leveraged ETFs are frequently marketed with the term "Ultra" or "2X" in their ETF trade name. Inverse ETFs seek to return the opposite of a given index, or double or triple the opposite of an index. Inverse ETFs are marketed as a way to hedge an investment strategy and they frequently carry the term "Short" or "Ultra Short" in their ETF trade names.
Recently, the SEC and FINRA warned investors that leverged ETFs and inverse ETFs are not designed to be held for long periods of time, and FINRA has warned that inverse ETFs and leveraged ETFs may not be suitable for retail investors who plan to hold them for more than one trading session, particularly in volatile markets.
These leveraged and inverse ETFs suffered losses following the market volatility of 2008 and 2009. The following list are those ETFs commonly sold ETFs during this time:
ProShares Ultra Short Real Estate Fund (SRS)
ProShares UltraShort Dow 30 ETF (DXD)
ProShares UltraShort Financials ETF (SKF)
ProShares UltraShort FTSE/Xinhua China 25 ETF (FXP)
ProShares UltraShort Gold ETF (GLL)
ProShares UltraShort DJ-AIG Crude Oil ETF (SCO)
ProShares UltraShort Oil & Gas ETF (DUG)
ProShares UltraShort MSCI Emerging Markets ETF (EEV)
ProShares Ultra Financials ETF (UYG)
Your stockbroker/dealer may have misrepresented the risks involved with these ETFs, failed to fully explain the risks and how ETFs work, or recommended ETFs to someone the investment was not suitable.
Securities Attorney, Lars Soreide, of Soreide Law, PLLC, has represented clients nationwide. If you or a family member have experienced a loss through the sale of ETFs, call a Securities Arbitration Lawyer for a free consultation on how to potentially recover your losses. To speak with an attorney, call 888-760-6552, or visit www.securitieslawyer.com.
Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority
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