Leveraged and inverse ETFs have been back in the headlines recently following the release of a Federal Reserve research paper, which suggested the products may contribute to market volatility. Now, iShares doesn’t offer any leveraged or inverse funds in the United States, but as the largest global ETF provider, I felt it was worth re-stating our position on these products, which is the following:
- We believe leveraged and inverse ETFs may not be appropriate for individual, buy-and-hold investors. These are complex, niche products that carry additional risks that are not always readily apparent. For this reason, these funds may be better suited for institutions and trading professionals.
- We advocate a classification system that clearly defines the differences between exchange traded products. “ETF” is an umbrella term that can be used to categorize a vast group of products which can vary greatly in their goals and structure. That being said . . .
- Leveraged and inverse ETFs make up a very small percentage of the ETF market. Of the $1.53 trillion in US ETF assets under management, leveraged and inverse funds make up 2.3%.
As we have highlighted before, we believe our industry and regulators have a responsibility to make sure that investors who purchase ETFs know what they are buying and appreciate the risk and costs associated with all products.
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