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The Problem With Dow ETFs

Michael Johnston — Tue, 02 Feb 2010 21:42:58 +0000

The Dow Jones Industrial Average is one of the most widely-followed stock indexes in the world, seen as a barometer of U.S. equity market performance. The rise of the ETF industry has given investors the option to track the performance of this benchmark, and a number of spin-offs have increased ETF options for investing in the Dow. But before buying into one of the available Dow ETFs, investors should be aware of the potential drawbacks and limitations associated with each of the funds [see also Free Report: How To Pick The Right ETF Every Time]. History Of The Dow The Dow is one of the market indexes created by Wall Street Journal editor and Dow Jones founder Charles Dow, who named the benchmark jointly after statistician Edward Jones. The benchmark is the second oldest in the U.S., behind only the Dow Jones Transportation Index. The composition of the index has [...]

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The Other Side Of The Leveraged ETF Coin

Michael Johnston — Mon, 31 Aug 2009 08:30:19 +0000

Leveraged ETFs have taken a beating in the financial presses lately, mostly the result of misconceptions about the intended uses and users of these funds. Most of the criticism has focused on the performance of leveraged ETFs when held for multiple trading sessions. Because leveraged ETFs seek to amplify the return on their underlying benchmarks on a daily basis, the returns generated by leveraged ETFs over time do not depend solely on the change in the underlying index, but in its volatility and the direction of the market as well. Leveraged ETFs (I’ll assume a bull leveraged ETF throughout this article) increase their exposure as the underlying index increases, and vice versa. Therefore, in trending markets, leveraged ETFs tend to deliver a return greater than the target multiple of the benchmark’s gain or loss. But in volatile, oscillating markets, leveraged ETFs may deliver a return that is less than the [...]

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How To Fix the Leveraged ETF Mess

Michael Johnston — Fri, 26 Jun 2009 11:00:28 +0000

Leveraged ETFs have quickly become the hot-button issue in the ETF industry, dividing investors and observers into two distinct camps. On the one side are sophisticated day traders who believe these funds, which use derivatives and other complex financial instruments to provide amplified daily returns on a target index, are the greatest thing since sliced bread. And on the other are those who accuse these ETFs of being fundamentally dishonest in nature – products that, in the words of legendary investor Jack Bogle, “verge on insanity.” Personally, I fall somewhere in between, believing that leveraged ETFs can be an incredibly powerful tool for sophisticated investors, but acknowledging that there exists the potential for these funds to be used in a detrimental manner by investors unaware of exactly how they function. And while I’m generally inclined to let things be, it’s becoming increasingly clear that this issue will not be going away any time soon [...]

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The Ultimate Guide to Leveraged ETFs: Their Uses, Their Risks, and More

Andy H — Mon, 27 Apr 2009 15:05:41 +0000

In the past few years the interest in leveraged ETFs has skyrocketed. With this new level of interest, so too has criticism of these funds increased. The truth is however most financial products, Mr. Madoff aside, aren’t “good” or “bad”–they’re appropriate for some goals, and inappropriate for other goals. Let’s take a look at leveraged ETFs, and how they can be intelligently utilized. How Exactly Does a Leveraged ETF Work? A leveraged ETF is not actually that complicated. It simply combines two things: leverage… and (wait for it!) an ETF. A leveraged ETF works like any other passively-managed ETF: it tracks an index. Additionally, it uses borrowed money towards the goal of increasing returns. (Though, note that both returns and losses are magnified when you invest with leverage.) Usually, every one dollar of investor equity is combined with one dollar of borrowed money. A 1:1 ratio such as this would [...]

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ETF Database » DDM

The Problem With Dow ETFs

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The Other Side Of The Leveraged ETF Coin

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How To Fix the Leveraged ETF Mess

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The Ultimate Guide to Leveraged ETFs: Their Uses, Their Risks, and More

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