New Types Of Exchange Traded Funds Give Investors Three Times More Action!
Roben Farzad in a recent article published on Businessweek.com titled, “Beware of ETFs on Steriods,” says that the tools that the traders and investors are now getting to play the markets are getting more powerful. But with more power comes the potential of high risk. For example, there are exchange traded funds that magnify daily returns of the indexes they are constructed to follow.
But on December 1st, Direxion Funds announced that they would be converting their two times ETFs to provide triple the returns of the indexes that they follow. Supersizing has been a good business for Direxion. It now offers 40 ETFs as compared to just 8 some three years back. But critics are saying that these pumped up ETFs are creating more volatility in the market which is scaring the general investors from the market.
ETFs are baskets of securities that track an index. ETFs can be traded like a stock. Leveraged ETFs provide multiple of the daily returns of an index by using derivatives like options and futures. Then there are Inverse ETFs that give an opposite return for those investors who want to bet against the market. ETFs are now accounting 35% to 40% of the trading on the US Stock Exchanges.
Critics argue that these ETFs increase the market volatility. ETFs lump into one security assets that are alike but not the same. In the past it would require 50 decisions to buy 50 stocks now it’s just one. With arguments like these, critics content that ETFs exacerbate market swings and make it more volatile.
Eileen Rominger, Director of SEC’s Investment Management Div according the Businessweek.com article, says that since 2010 SEC staff has deferred approval of new ETFs that heavily depend on derivatives as the effect of these type of ETFs on the market volatility is being considered.
Bill Poulos is a veteran trader of many decades. He started trading in 1974 and lives in Michigan. He has over the years developed a four step Portfolio Prophet Fast Filter Technique that weeds out those junky ETFs that can poison your investment portfolio. Bill says that there are many junky ETFs in the market that can poison your portfolio and you must avoid investing in those ETFs at all cost if you want to protect your portfolio. Using his Portfolio Prophet Fast Filter Technique, Bill takes only 10 minutes per week to select the best ETFs in the market.