ETF Leveraged Equity is popular because investors bet on market recovery
Funds traded by leveraged equity exchange have seen a surge in entrances this month because some investors are trying to position the benefits strengthened when the market recovered from the sale action caused by US Presidential Trade Tariff Donald Trump.
According to LSEG Lipper data, Leveraged Equity Funds have received an entrance flow of $ 10.95 billion so far this month, has exceeded the highest 5 years $ 9.2 billion recorded last month. The previous peak was in March 2020, when the market was hit by the Covid crisis.
Leveraged equity funds are designed to provide multiples of daily returns from the underlying index such as S&P 500 SPX or Nasdaq 100 IXIC. They are very popular among retail investors who want to avoid the futures market, where volatility can trigger margin calls or forced sales if prices fall.
Because Trump announced the reciprocal rate on April 2, the MSCI World Index Euronext: IACWI fell more than 3%, while the S&P 500 and the Nasdaq Index each fell 5%.
The loss was initially steeper but there was a recovery in the market after his decision to pause the tariff was 90 days.
Rob Kane, Director of Alternative Investment at the Commonwealth Financial Network, said that the entry flow to ETF Leverage was mostly driven by the hope of cutting federal reserve tariffs that will soon occur and the view that the tariff is used as leverage in broader trade negotiations.
“Excessive initial reactions driven by investor sentiments are often reversed quickly, and the short -term performance nature of ETF Leveraged, combined with the substantial benefits they can produce, making it a tactical device to utilize high price dislocation,” he said.
This fund has gained popularity, thanks to an increase in trading platforms such as Robinhood, which offers easy access to this type of ETF for retail investors.
However, some analysts warn that these funds suffer from performance decay, where returns erode from time to time due to daily balance and market volatility, making them risk for long -term ownership.
Vince Stanzoine, Chief Executive Officer in First Information, said ETF Leveraged is not suitable for long -term ownership and daily reset plays chaos with returns, especially when the market is not trending.
“Actually, a professional trader, including me, will be short ETF Leveraged X3 such as TQQQ to benefit from this decay and inefficiency.”
Source: Reuters
