The Securities and Exchange Commission and the Financial Industry Regulatory Authority issued a joint investor alert today warning investors about the risks associated with leveraged and inverse exchange-traded funds.
Leveraged ETFs are funds that seek to deliver multiples of the performance of the index or benchmark that they track. Inverse ETFs, also called short funds, try to deliver the opposite of the performance of the index or benchmark to which they are pegged. The trouble with these products, says FINRA, is that they reset daily. Over longer periods, their performance can differ significantly from the performance of the related index.