Leveraged Short Financial ETFs Down in 2014

Financial stocks were amongst the best performing stocks throughout 2014. Berkshire Hathaway (NYSE: BRK.B), which makes up over 9% of the financial sector, was up 26.64% on the year. Several inversely leveraged financial 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 financial stocks were down over 27% each in 2014:

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 financial securities, you may have options to recover your investment loss. If your advisor failed to fully disclose the risks of investing in inversely leveraged financial 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 financial 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.