Jan 8, 2016

Regulators have long worried that the nature of leveraged ETFs—which are meant to be traded intraday, not even held overnight—was too confusing for many investors, who would hold them too long, not aware of the lethal time decay of the assets being acquired.
ProShare Advisors and Direxion Shares, the two competing leveraged ETF providers, say that these funds aren’t intended to be held without close monitoring. In straight up or straight down markets, the leveraged ETF strategy can work very well. But in any up and down volatile market, leveraged ETFs can be a disaster. The Securities and Exchange Commission has long contended that investors in leveraged ETFs are “confused about the performance objectives.” They are unaware of the derivative positions that either work or don't work on a daily basis, which can result in permanent losses and internal decay of the fund. Steve and Sinclair review how these tricky ETFs work and why the SEC is taking some action. In the Q & A segment, Steve reviews some key points on annuity misconceptions. Parts of this show were heard on Tuesday January 5.