Tom and Brendan discuss leveraged Exchange Traded Funds in this week’s Mullooly Asset Management podcast. There’s a lot that investors need to understand about leveraged ETFs. The first thing that investors need to know is that these funds are not your average investment. Tom and Brendan get into why that is in the podcast. When dealing with this type of investment, whether or not it is suitable completely depends on the investor and the current market trends.
So what might make a leveraged ETF suitable? They are worth considering if you can tell that a sector is moving into a long term positive trend. The problem for most investors is that fundamental analysis will not tell you this information. However, point and figure methods will tell us when charts are changing trends. Point and figure charting is a method we use at Mullooly Asset Management. Leveraged Exchange Traded Funds definitely have some risk involved with them. They are certainly not suitable for everybody. These funds are very attractive and provide great gains on the way up. They can also do a lot of damage on the way down.
Another important concept to understand about leveraged ETFs is that there are different types. Some of these funds are 150% of the daily move, while others are 200% and even 300%! Funds trading at 300% of the daily move are called triple index funds, and are really for day traders only. A lot of investors make assumptions about leveraged Exchange Traded Funds. One that Tom has heard many times sounds like this, “The sector was up 10%, so this leveraged ETF should be up 15% or more, right?”. This is not the case, and Tom explains why in the podcast.
The bottom line when it comes to leveraged ETFs is that they are juicy, attractive investments. They are risky, and need to be managed properly though. Sticking with sectors or indexes in clear up-trends is the way to go when investing in these funds. So are leveraged Exchange Traded Funds suitable for you? That totally depends on your investment goals and many other things. Feel free to contact us at Mullooly Asset Management with any questions you may have about leveraged ETFs. Be sure to listen to this week’s podcast to gain a better understanding of these funds.