The Securities and Exchange Commission is concerned that some mutual funds and actively managed and leveraged ETFs, in particular, may be investing too heavily in swaps and derivatives. If the staff determines that the investments are inconsistent with the leverage, concentration and diversification provisions of the Investment Company Act, it will cease granting exemptions going forward. Funds that already received exemptions would not be impacted, the SEC said.

The Commission recently issued an investor warning on leveraged ETFs, and advisors have responded by clearly explaining the risks involved with investing in leveraged ETFs beyond one day.

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