ProFunds to Offer First Leveraged ETFs

ProFunds has filed registration statements with the Securities and Exchange Commission to offer three new leveraged exchange-traded funds, the first ETFs to apply this strategy, MarketWatch reports.

The bullish ETF would double the market's upside, and the bearish ETF would deliver the opposite, on the upside, of a decline in the market. Thus, if the market dropped 2%, this fund would return a positive 2%. The ultra-short bearish fund would double the market's decline, again on the upside. Thus, if the market dropped 2%, this fund would ostensibly rise 4%. The funds would be able to deliver these returns by using futures, options and other derivatives.

"There are financial advisers, institutional investors and hedge funds who employ these strategies to hedge market exposure, noted Morningstar Analyst Dan Culloton. However, many advisers warn individual investors against putting their money in such so-called "high-octane" funds, as they magnify market movements and can cause steep losses. Also, to deliver such returns, turnover in leveraged funds is quite high, and these fees can also sap performance.