XXXX Is Investing On Steroids: The Rise And Risks Of Leveraged ETNs

seekingalpha03-21

ETF assets have grown at a 15% CAGR since 2010, outpacing traditional mutual funds.ETFs now offer both passive and active investment strategies, including leveraged and volatility-related products.The...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2421577104?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1015828796/image_1015828796.jpg","is_english":true,"pubTime":"2024-03-21 02:20","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2421577104","market":"hk","top_or_hot":-1,"title":"XXXX Is Investing On Steroids: The Rise And Risks Of Leveraged ETNs","media":"seekingalpha","content":"<div>\n<p>ETF assets have grown at a 15% CAGR since 2010, outpacing traditional mutual funds.ETFs now offer both passive and active investment strategies, including leveraged and volatility-related products.The...</p>\n\n<a href=\"https://seekingalpha.com/article/4679433-xxxx-is-investing-on-steroids-the-rise-and-risks-of-leveraged-etns\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>XXXX Is Investing On Steroids: The Rise And Risks Of Leveraged ETNs</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nXXXX Is Investing On Steroids: The Rise And Risks Of Leveraged ETNs\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-03-21 02:20 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4679433-xxxx-is-investing-on-steroids-the-rise-and-risks-of-leveraged-etns><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>ETF assets have grown at a 15% CAGR since 2010, outpacing traditional mutual funds.ETFs now offer both passive and active investment strategies, including leveraged and volatility-related products.The...</p>\n\n<a href=\"https://seekingalpha.com/article/4679433-xxxx-is-investing-on-steroids-the-rise-and-risks-of-leveraged-etns\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4207","symbol_name":"综合性银行","start_time":0,"source_url":"https://seekingalpha.com/article/4679433-xxxx-is-investing-on-steroids-the-rise-and-risks-of-leveraged-etns","article_id":"2421577104","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1015828796/image_1015828796.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2421577104","pubTimestamp":1710958822,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"ETF assets have grown at a 15% CAGR since 2010, outpacing traditional mutual funds.ETFs now offer both passive and active investment strategies, including leveraged and volatility-related products.The","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4207":"综合性银行","LU0198837287.USD":"UBS (LUX) EQUITY SICAV - USA GROWTH \"P\" (USD) ACC","BK4574":"无人驾驶","LU1852331112.SGD":"Blackrock World Technology Fund A2 SGD-H","LU0316494557.USD":"FRANKLIN GLOBAL FUNDAMENTAL STRATEGIES \"A\" ACC","LU1861215975.USD":"贝莱德新一代科技基金 A2","LU1548497426.USD":"安联环球人工智能AT Acc","LU0820561818.USD":"安联收益及增长平衡基金Cl AM DIS","LU1861220033.SGD":"Blackrock Next Generation Technology A2 SGD-H","BK4581":"高盛持仓","LU2602419157.SGD":"HSBC ISLAMIC GLOBAL EQUITY INDEX \"AC\" (SGD) ACC","SPY":"标普500ETF","BK4504":"桥水持仓","LU2326559502.SGD":"Natixis Loomis Sayles US Growth Equity P/A SGD-H","LU1720051108.HKD":"ALLIANZ GLOBAL ARTIFICIAL INTELLIGENCE \"AT\" (HKD) ACC","OEX":"标普100",".SPX":"S&P 500 Index","SDS":"两倍做空标普500ETF","LU0234570918.USD":"高盛全球核心股票组合Acc Close","XXXX":"MAX S&P 500 4x Leveraged ETN","COIN":"Coinbase Global, Inc.","BK4592":"伊斯兰概念","LU0056508442.USD":"贝莱德世界科技基金A2","LU0719512351.SGD":"JPMorgan Funds - US Technology A (acc) SGD","SPXU":"三倍做空标普500ETF","BK4585":"ETF&股票定投概念","BK4595":"比特币概念","UPRO":"三倍做多标普500ETF","TSLA":"特斯拉","IE00BSNM7G36.USD":"NEUBERGER BERMAN SYSTEMATIC GLOBAL SUSTAINABLE VALUE \"A\" (USD) ACC","LU0234572021.USD":"高盛美国核心股票组合Acc","LU0820562030.AUD":"ALLIANZ INCOME AND GROWTH \"AMH2\" (AUDHDG) H2 INC","SH":"标普500反向ETF","LU2063271972.USD":"富兰克林创新领域基金","DUST":"二倍做空黄金矿业指数ETF-Direxion","BMO.AU":"BASTION MINERALS LTD","BMO":"蒙特利尔银行","IVV":"标普500指数ETF","LU2087621335.USD":"ALLSPRING GLOBAL FACTOR ENHANCED EQUITY \"A\" (USD) ACC","JNUG":"金矿指数二倍做多ETF","SSO":"两倍做多标普500ETF","BK4527":"明星科技股","IE00BWXC8680.SGD":"PINEBRIDGE US LARGE CAP RESEARCH ENHANCED \"A5\" (SGD) ACC","FDN":"First Trust Dow Jones Internet I","BK4588":"碎股","LU0466842654.USD":"HSBC ISLAMIC GLOBAL EQUITY INDEX \"A\" (USD) ACC","LU0689472784.USD":"安联收益及增长基金Cl AM AT Acc","OEF":"标普100指数ETF-iShares"},"translate_title":"XXXX正在类固醇上投资：杠杆ETNs的上升和风险","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"XXXX":1,"JNUG":1,"TSLA":1,"DUST":1,"COIN":1,"BMO.AU":1,"BMO":1,"FDN":0.9,"SPY":0.9,"UPRO":0.6,"SDS":0.6,"OEF":0.6,"SSO":0.6,"SPXU":0.6,"SH":0.6,"OEX":0.6,"ESmain":0.6,"IVV":0.6,".SPX":0.6},"content_text":"ETF assets have grown at a 15% CAGR since 2010, outpacing traditional mutual funds.ETFs now offer both passive and active investment strategies, including leveraged and volatility-related products.The MAXTM SPX 500® 4X Leveraged ETN leverages the S&P 500 by 4x, but holding it long-term can lead to disappointing returns.phive2015 ETF assets under management have compounded at a 15% compound annual growth rate in 2010. According to Oliver Wyman, this is 3x faster than the growth of traditional mutual funds. At first ETFs were mostly associated with passive investment strategies. That's no longer necessarily the case, and there is an increasing amount of active strategies that are available through ETFs and ETNs. Lately, I'm fascinated by the leveraged and volatility-related products that are coming to the market. Some good, some bad. It is especially interesting to me what market impact they are potentially having or could have in the future (on further growth). To understand this better, it helps to understand the products. I've found a number of surprising products recently, like leveraged ETFs on volatile single stocks like Coinbase Global, Inc. (COIN) and Tesla, Inc. (TSLA). Today, I came across an ETN, called the MAX S&P 500 4X Leveraged ETN (NYSEARCA:XXXX), that is leveraging the S&P 500 (SP500) by, you guessed it, 4x. This can be a useful product for some investors, but it is important to understand some of its specific characteristics because a buy & hold strategy will be highly likely to lead to disappointing returns. In addition, exchange-traded notes, or ETNs, are also senior unsecured debt obligations and introduce a secondary risk in terms of the issuer's creditworthiness. This ETN is given out by Bank of Montreal (BMO). The credit risk doesn't seem to be very high given that 4.8% perpetuals trade above 96 cents on the dollar. BMO perpetual price (Boerse Frankfurt) It is something to keep in mind when we're entering a financial crisis. Getting access to leverage could suddenly look a lot less appealing. Investors are likely attracted to this ETF because the prospect of 4x exposure to one of the best-performing indexes over the last decade is enticing. The S&P 500 has been an unstoppable force. Data by YCharts I can definitely see the appeal. The fund charges a daily fee that's like charging ~0.95% on an annualized basis. That's quite high for what's essentially a passive investment on steroids. However, the fund is able to get its leverage. I expected this rate to be relatively attractive making up for the fee level. However, according to the prospectus, the fund is borrowing at the Fed's Bank Loan Prime Rate. To this, they add a financing spread of 2%. That's currently 8.5% + 2% = 10.5%. There are other challenges to holding an ETF like this. Looking at the website and the materials provided, I have to give props to the Bank of Montreal. I have not come across a leveraged ETF product that spells out the important risks (especially path dependency) so clearly and prominently. The materials straight-up warn investors that buying & holding this product is not how this product should be utilized. A key problem with these ETFs is that they up leverage after a positive day (to maintain 4x exposure) and decrease leverage at the end of a negative day (to maintain 4x exposure). Interest costs also play a part but the effect of this \"volatility tax\" can be very significant. Or as the issuer puts it in the prospectus: It is possible that you will suffer significant losses in the 4x ETNs even if the long-term performance of the Index is positive (before taking into account the negative effect of the Daily Investor Fee and the Daily Financing Charge, and the Redemption Fee Amount, if applicable). Things have been very calm with very little volatility since inception of the fund. I think it is not unfair to call these ideal circumstances. Data by YCharts Yet the fund didn't 4x the S&P 500. It falls ~2.5% short of that within a timeframe of 4 months. And I couldn't have drawn up a S&P 500 graph that is more conducive to a leveraged ETF like this. What really hurts returns are choppy markets. One day up, one day down. Especially, if the moves are fairly large. This is easy to see with extreme examples. Let's say the S&P 500 falls 12.5%. The ETN is 4x leveraged so it would fall 50%. Then the next day the S&P 500 rebounds 14.3% (that would get it back to the same level as the day before. However, the leveraged ETF would only bounce back to 78% of its prior level. In a flat market a buy & hold investor would have lost 22%. The effect is very strong in our extreme example and that's also why high volatility is very detrimental. A downwards direction is obviously not conducive to a leveraged long investment but a flat trajectory or an upwards trajectory with lots of 2% up days and 2% down days will also be a very challenging environment. The issuer is actually very blunt about the importance of this effect (emphasis mine): As a result of this decay effect, it is extremely likely that the value of the notes will decline to near zero (absent reverse splits) by the Maturity Date, and likely significantly sooner. Accordingly, the notes are not suitable for intermediate- or long-term investment, as any intermediate or long-term investment is very likely to sustain significant losses, even if the Index increases over the relevant time period. Although the decay effect is more likely to manifest itself the longer the notes are held, the decay effect can have a significant impact on the performance of the notes, even over a period as short as two days Another problem these types of products sometimes have is that they follow the index but do not pass on the dividends on the underlying. In this case, the ETN doesn't pass the dividends on either. However, it has picked an S&P 500 variant index that adds the paid dividends by the constituents to the level of the index. How bad this tends to turn out is evident if you look at leveraged volatile ETFs. Favorites of mine are the leveraged Direxion Daily Junior Gold Miners Index Bull 2X Shares ETF (JNUG) and the Direxion Daily Gold Miners Index Bear 2X Shares ETF (DUST). You would think these are inverse products. Over one day they actually produce inverse results. Over the past year, both ETFs are down 15%+ while gold is actually up 8%: Data by YCharts If this is such a dangerous product, then why does it exist? Well, it is possible to do well with an ETN like this. It works best for short-term traders who have an idea of how the S&P total return index will behave over the next few days. A number of up days in a row without down days in between leads to very strong performance. The ETF will leverage up further each day and you don't suffer the volatility drain that occurs when investing over a period with up and down days. In sum, bull markets draw investors to leverage. It depends on traders and investors ability to generate returns and expectations whether that's right for them or not. I'm not sure getting leverage through a product like this is the most efficient way. It looks quite expensive.  However, the issuer, Bank of Montreal, is very transparent and puts the disadvantages of these products front and center in its communications. Leveraging the S&P 500 by four times may seem appealing, especially given its historical performance, but as illustrated above, the reality of achieving quadruple the index's return is far from straightforward. I'd stay away from this product unless I was a short-term index trader knowing exactly what I was doing. Even then, I imagine I'd prefer to trade futures. For anyone but a short-term to medium-term speculator, this seems like a clear sell to me.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2421577104"}