Leveraged Inverse S&P 500 ETFs Down Over 25% in 2014
The S&P 500 Index had a very strong year in 2014 by gaining 11.39% for the year. Several inversely leveraged S&P 500-focused investment funds, however, which actively trade in the US in the form of exchange traded funds (ETFs), performed poorly in 2014.
Leveraged ETFs are set up to track the daily performance of an underlying index or strategy, usually by two or three times in the same (bull) direction or inverse (bear) direction, by purchasing or selling complex option and derivative contracts in addition to the underlying securities.
The following inversely leveraged funds that track the S&P 500 were down over 25% each in 2014:
| Ticker | Fund Name | 2014 Performance |
| SPXS | Direxion Daily S&P 500 Bear 3X Shares | -37.99% |
| SPXU | ProShares UltraPro Short S&P 500 | -36.89% |
| SDS | ProShares UltraShort S&P 500 | -25.66% |
Leveraged funds are specifically structured for traders looking to time the market and realize short-term profits based on the underlying index making single-day moves. Leveraged funds are generally not suitable for long-term investors, as the investment will ultimately lose value or significantly underperform, over a longer term, compared to its stated objective. In fact, Direxion Funds, a leader in leveraged ETFs, puts this disclosure in bold print on its web-page for each of its leveraged funds: “The fund should not be expected to provide [the multiple] times the return of the benchmark’s cumulative return for greater than a day.” Therefore, these leveraged funds are highly unsuitable for long term investors.
If your financial advisor or stockbroker recommended that you invest in inversely leveraged S&P 500 securities, you may have options to recover your investment loss. If your advisor failed to fully disclose the risks of investing in inversely leveraged S&P 500 securities, then you may have a claim for misrepresentation. If your investment objective was to only invest in safe and stable investments, you may have a claim for unsuitability. If inversely leveraged S&P 500 securities made up a large portion of your portfolio, then you may have a claim for over-concentration and lack of diversification. If your advisor purchased this fund without your knowledge, you may have a claim for unauthorized trading. If your advisor purchased this fund on margin, you may have a claim for excessive use of margin and negligence.
The attorneys at Carlson & Associates, P.A., located in Miami, Florida, represent investors who have lost money due to the improper conduct of financial advisors. If you would like to have a free consultation, we can be reached at (305) 372-9700 to discuss your options.