Are Leveraged ETPs Safe? - InvestingChannel

Are Leveraged ETPs Safe?

Proprietary Data Insights

Financial Pros’ Top Leveraged ETP Searches in the Last Month

#1‘ProShares UltraPro QQQ386
#2‘ProShares UltraPro Short QQQ274
#3‘MicroSectors FANG+ Index -3x Inverse Leveraged ETN160
#4‘Direxion Daily Semiconductor Bull 3x Shares127
#5‘Direxion Daily Gold Miners Bull 2x Shares104
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Are Leveraged ETPs Safe?

It doesn’t matter whether you’re a retail investor or a financial advisor/

EVERYONE wants to juice their returns, which is what makes leveraged ETPs so appealing.

You’ll notice we say ‘ETP’ or exchange-traded-product, which is the umbrella term for ETFs (exchange-traded-funds) and ETNs (exchange-traded-notes).

Most folks aren’t aware of how different these two products are…and that could open you to MASSIVE RISK.

Case in point – the 3rd highest search from financial pros for leveraged ETPs included an ETN.

ETNs are terrible investment vehicles and should never be held long-term.

So, to keep you and your money safe, we’re going to dive into MicroSectors FANG+ Index -3X Inverse Leveraged ETN (FNGD) to explore the dangers underneath the surface.

Key Facts About FNGD

  • Net assets: $160.65 million
  • 12-month trailing yield: 0.69%
  • Inception: January 22, 2018
  • Expense ratio: 0.95%
  • Number of holdings: N/A

FNGD is a particularly old fund, just hitting its 5-year mark in January.

The ETP is an exchange-traded-note, which is a debt instrument issued by a financial institution.

This means it doesn’t hold anything. You just get a debt note like an IOU.

Generally, this leads to a lower tracking error (the spread between the index performance and the ETP performance).

However, it adds risk since the issuing institution could go belly up leaving you with nothing.

On the other hand, ETFs hold assets. Leveraged ETFs generally use derivatives while regular ETFs hold the components of the index themselves.


Hopefully, you haven’t held FNGD since inception as you’d be down more than 99%.

That’s fairly common with inverse ETPs, especially leveraged ones, that follow stocks since stocks tend to move up over time.

However, these ETPs are mathematically at a disadvantage.

You see, most track the daily movement of an index, resetting the next day.

Here’s why that’s a problem.

Say the underlying index starts at $100 and then moves up 10% to $110. Then it drops by 10%, bringing it down to $99.

Assume the 2x leveraged ETF starts at $100 as well. The first day it moves up to $120. The second day it drops to $96 since it drops 20%.

The underlying index is down 1% but the leveraged ETF is down 4%.

When you combine that with equities that tend to rise over time, you get some like this…



As we mentioned earlier, ETFs hold assets, whether its futures or equities themselves.

ETNs hold nothing.

So, you’ll note that the holdings are listed as ‘N/A’ for most of these tickers. That’s because they tend to use derivatives that vary in size, amount, and how many held.

  • ProShares UltraPro QQQ (TQQQ): This ETF offers 3x daily movement of the NASDAQ-100 Index
  • ProShares UltraPro Short QQQ (SQQQ): This ETF offers 3x inverse daily movement to the NASDAQ-100 Index.
  • Direxion Daily Semiconductor Bull 3x (SOXL): This ETF offers 3x daily movement of the PHLX Semiconductor Index.

‘Direxion Daily Gold Miners Bull 2x (NUGT): This ETF offers 2x daily movement of the NYSE Arca Gold Miners Index

Net assets

Our Opinion – Say NO to ETNs

We’re not going to bother with a rating on ETNs as it should be clear why no one should hold them in their portfolio.

Over time, we’ve seen many of them stop trading overnight, leaving shareholders with nothing.

Be careful with any leveraged ETP, especially those that track the inverse performance of an index. These are not meant to be held long-term.


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