What we're looking at
Leveraged and inverse exchange-traded funds are a tool for sophisticated investors to profit on moves up or down by select stock indexes and commodities. Holdings in these ETFs need to be adjusted daily to work properly, but what happens if you buy and hold?
Here's a list of leveraged and inverse ETFs and their returns over the past one- and two-year periods. Leveraged ETFs give you two times the underlying move in a stock index or commodity, which magnifies both gains and losses. Inverse ETFs allow you to profit from the opposite of whatever the underlying investment does.
What we found
Quite a few investors got into trouble with leveraged and inverse ETFs when they were introduced a few years back by taking a buy-and-hold approach. There are several examples here of these ETFs causing substantial losses when held over one- or two-year periods.
There are also some exceptions, however. Natural gas prices have fallen hard in the past two years and the Horizons BetaPro NYMEX Natural Gas Inverse ETF has been a very strong one- and two-year performer. This ETF allows investors to profit from declining gas prices.
Don't be lulled into taking a long-term approach with inverse and leveraged ETFs, though. They're designed to do what they do over a one-day time frame. If you hold longer, continual monitoring and adjustment is mandatory. If you don't mind your leveraged and inverse ETFs properly, returns may wander in unexpected directions. A quick reminder of why you don't want to hold for an extended period can be found in the Horizons BetaPro S&P 500 Bull Plus ETF, which lost 0.4 per cent for the 12 months to Feb. 29. The S&P 500 index made 6.5 per cent over that period in Canadian dollar terms.
LEVERED/INVERSE ETFS SORTED BY MER
|Fund||Ticker||MER (%)||Inception||Leverage Factor||Category||2 Year Annual Return to Feb. 29 (%)||1 Year Annual Return to Feb. 29 (%)|
|Horizons BetaPro US 30-yr Bond Bull Plus ETF||HTU-T||1.41||25-Jun-08||2||Levered Fixed Income||27.6||46.2|
|Horizons BetaPro NYMEX Natural Gas Inverse ETF||HIN-T||1.40||4-Feb-10||-1||Inverse Commodity||54.4||75.1|
|Horizons BetaPro NYMEX Natural Gas Bull Plus ETF||HNU-T||1.40||16-Jan-08||2||Levered Commodity||-74.8||-79.9|
|Horizons BetaPro US Dollar Bear Plus ETF||HDD-T||1.39||26-Jun-08||-2||Levered Inverse Currency||3.5||-5.4|
|Horizons BetaPro S&P/TSX Glbl. Base Metals Bull Plus||HMU-T||1.39||23-Jan-08||2||Levered Equity||-12.6||-50.2|
|Horizons BetaPro S&P/TSX Capped Energy Bear Plus||HED-T||1.39||19-Jun-07||-2||Levered Inverse Equity||-20.9||20.3|
|Horizons Betapro S&P 500 VIX Short Term Fut. Bull Plus||HVU-T||1.39||16-Dec-10||2||Volatility||n/a||-58.9|
|Horizons BetaPro S&P/TSX Glbl. Gold Bear Plus ETF||HGD-T||1.39||26-Jun-07||-2||Levered Inverse Equity||-32.1||-13.7|
|Horizons BetaPro S&P/TSX Capped Energy Inverse||HIE-T||1.38||11-Mar-09||-1||Inverse Equity||-9.0||13.5|
|Horizons BetaPro S&P/TSX Global Gold Inverse ETF||HIG-T||1.38||11-Mar-09||-1||Inverse Equity||-14.0||-2.3|
|Horizons BetaPro NYMEX Crude Oil Inverse ETF||HIO-T||1.38||4-Feb-10||-1||Inverse Commodity||-10.7||-13.9|
|Horizons BetaPro S&P/TSX Capped Fincl. Inverse||HIF-T||1.38||9-Mar-09||-1||Inverse Equity||-7.5||1.8|
|Horizons BetaPro US 30-yr Bond Bear Plus ETF||HTD-T||1.38||25-Jun-08||-2||Levered Inverse Fixed Inc.||-27.4||-36.7|
|Horizons BetaPro MSCI Emerging Markets Bear Plus||HJD-T||1.38||9-Jul-08||-2||Levered Inverse Equity||-31.7||-22.2|
|Horizons BetaPro MSCI Emerging Markets Bull Plus||HJU-T||1.38||9-Jul-08||2||Levered Equity||1.6||-18.0|
|Horizons BetaPro S&P 500 Inverse ETF||HIU-T||1.38||4-Feb-10||-1||Inverse Equity||-15.2||-9.3|
|Horizons BetaPro S&P/TSX Glbl. Base Metals Bear Plus||HMD-T||1.38||23-Jan-08||-2||Levered Inverse Equity||-31.1||8.5|
|Horizons BetaPro S&P/TSX Capped Fincl. Bull Plus||HFU-T||1.38||12-Jun-07||2||Levered Equity||4.4||-14.7|
|Horizons BetaPro S&P/TSX Capped Fincl. Bear Plus ETF||HFD-T||1.38||12-Jun-07||-2||Levered Inverse Equity||-15.9||1.0|
|Horizons BetaPro COMEX Gold Bullion Bear Plus ETF||HBD-T||1.38||23-Jan-08||-2||Levered Inverse Commod.||-40.6||-40.3|
|Horizons BetaPro COMEX Gold Bullion Bull Plus ETF||HBU-T||1.38||23-Jan-08||2||Levered Commodity||41.1||34.4|
|Horizons BetaPro NASDAQ-100 Bear Plus ETF||HQD-T||1.38||18-Jun-08||-2||Levered Inverse Equity||-39.7||-32.2|
|Horizons BetaPro S&P/TSX Capped Energy Bull Plus||HEU-T||1.38||19-Jun-07||2||Levered Equity||-2.1||-40.7|
|Horizons BetaPro S&P 500 Bull Plus ETF||HSU-T||1.38||18-Jun-08||2||Levered Equity||17.7||-0.4|
|Source: National Bank Financial, Bloomberg|
© 2007 The Globe and Mail. All rights reserved.
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