Increasing ETF Leverage

Posted by Bull Bear Trader | 5/01/2008 03:53:00 PM | , | 0 comments »

Increasing leverage has worded so well over the last few months (tongue firmly in cheek), that it only makes sense to give average individual investors the same opportunity to seek a Fed bailout. Fortunately, roulette players now have a vehicle tailored just for them. Rafferty Asset Management has entered the ETF market, but not in an ordinary way. The firm has registered 34 ETFs based on various market indexes, each of which will deliver 3x the daily return (or inverse for the short ETFs). I am sure John Bogle, the champion of index ETFs, is not amused.

It is worth knowing that the ETFs deliver 2 or 3 times the daily return of the index concerned. Therefore, if the index goes up 1%, you do not necessarily get a 2% or 3% return. The 2x or 3x calculation only works from market open to market close. As such, these ETFs are tailored for daytraders and speculators that trade often during the day. The models could possibly be used for hedging, and would reduce the size of the position, but this does not appear to be the intended audience.