U.S. SEC approves request to list quadruple-leveraged ETFs
Comment of the Day

May 03 2017

Commentary by Eoin Treacy

U.S. SEC approves request to list quadruple-leveraged ETFs

This article by Trevor Hunnicutt may be of interest to subscribers. Here is a section:

One of the funds is designed to deliver 400 percent of the daily performance of S&P 500 .SPX stock index futures, while another fund will aim to deliver four times the inverse of that benchmark. That means a fund could go up 8 percent on a day the index it tracks falls by 2 percent.

ETFs offering three times leverage already trade in the United States, but more reactive products have been limited to listing in Europe.

"We're excited about it," said Sam Masucci, chief executive officer at Exchange Traded Managers Group LLC, which is distributing the product, though he said the product is "not going to be for everybody.

"But for those people that are looking for the leveraged exposure to the S&P and they're not looking to do it by way of a futures product here you have a publicly listed security," Masucci said.

Regulators' move to approve the products comes after a difficult time for sponsors of more exotic ETFs.

Eoin Treacy's view

Leverage and appetite for it are usually symptomatic of a bull market which has been in motion for a number of years because investors have plenty of retrospective evidence of higher prices and competition for outperformance trumps conservatism and prudence. I have seen anecdotal evidence that hedge funds routinely take on leverage orders of magnitude higher than is now permissible with ETFs.

With volatility and interest rates still close to record lows appetite for risk to boost returns is high. NYSE Debit Balances in Margin Accounts broke out to new highs, completing a three-year hiatus, in March suggesting this is a market with further to go on the upside. The broader lesson is that peaks in 2000 and 2007 following upward accelerations and while that may occur again, a peak does not appear imminent.

This SEC decision has been positive for the potential for a Bitcoin ETF to be permissioned and the price of the cryptocurrency extended its uptrend to another new high this week. It is over 40% overextended relative to the trend mean and the first clear downward dynamic will likely signal a peak of at least near-term significance. 

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