What are Leveraged and Inverse ETFs?
Whereas your typical ETF aims to mirror the performance of a specific index, leveraged ETFs seek to deliver multiples of the performance of the index or benchmark they track. An example of this type of leveraged ETF is one that invests in commodities or currencies. Some leveraged ETFs are “inverse” or “short” funds, meaning that investors are attempting to generate profit by tracking the opposite of the performance of the index or benchmark they track. Even more, there are other ETFs that are designed to be both short and leveraged, in which an investor would aim to generate profits in multiples on the inverse performance of the underlying index. An inverse ETF that tracks the S&P 500, for example, seeks to deliver the inverse of the performance of the S&P 500, while a 2x leveraged inverse S&P 500 ETF seeks to deliver twice the opposite of that index’s performance. To accomplish their objectives, leveraged and inverse ETFs pursue a range of investment strategies through the use of swap
