Rebalancing Act: A Primer On Leveraged And Inverse ETFs

Since their introduction in 2006, leveraged ETFs have become popular tools for investors looking to hedge positions or amplify exposure to movements in major indexes, and several such funds are now included among the most widely-traded securities in the world. But the debate over the suitability of these products for retail investors has been an intense one, with different sources and different research indicating conflicting results.

Raymund Wong, CFA, CPA, ABV and Kara Hargadon from NERA Economic Consulting discuss a number of issues surrounding leveraged and inverse ETFs, including “whether the recent controversy over leveraged and inverse ETFs will eventually prove to be an unfortunate byproduct of the financial crisis, or the result of an ill-designed security exposed by the same.”

This paper, published in October 2009, describes the effect of leverage rebalancing ratios, recent developments and controversies, the impact of market turmoil, disputes and legislation, and what is next for leveraged and inverse ETFs.

Read an overview of Rebalancing Act: A Primer On Leveraged And Inverse ETFs here and the complete research paper here (PDF).

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