The Financial Industry Regulatory Authority (FINRA) and the United States Securities and Exchange Commission (SEC) released a joint alert to give investors some information on inverse and leveraged exchange-traded funds (ETFs).
What Exactly Are ETFs?
ETFs differ from traditional mutual funds by trading throughout the day at prices that the market establishes on a securities exchange, and in most cases, they are registered investment companies with shares representing an interest in securities portfolios tracking an underlying index or benchmark. These investments have become more complex over the years as they’ve evolved with the market, and investors need to assume each ETF is different and carefully evaluate every investment when they consider investing.
What Are Inverse and Leveraged ETFs?
Inverse ETFs track benchmarks or indexes, and are designed to deliver the opposite of how those measurements perform, while leveraged ETFs are designed to deliver multiples of the performance of the metrics they track. Inverse ETFs, sometimes referred to as short funds, are commonly marketed as ways for investors to profit from markets on a downward trajectory.
Both of these types of ETFs are designed to meet their stated objectives daily, but their performance over an extended period of time can dramatically differ from the performance of the benchmark or index they are based on around the same period of time, and this difference can become even more pronounced when the market is especially volatile.
What You Should Consider Before Making an Investment
The best way to protect yourself from an unsuitable investment is to research the pros and cons of these types of ETFs. Some important questions to ask include:
What Happens If I Suffered Losses Due To Broker Misconduct?
If your broker or investment adviser’s recommendations resulted in significant losses, our investment fraud attorneys at Meyer Wilson may be able to help you recover your losses. For nearly 20 years, we have secured more than $350 million in verdicts and settlements for our clients. Give us a call at one of our four office locations to discuss your case with a member of our firm, or fill out our online form to start out with a free case evaluation today.