The complex world of leveraged and inverse ETFs

If you think these risky bearish bets have 1000% upside, think again – most individual investors lack the skills to perfectly time these products, and should avoid them altogether

Yan Barcelo 19 December, 2019 | 1:15AM

Scales

In this land of the 10-year bull market lives a Canadian investor who believes he can turn his $6,000 bet into something like $300,000. He believes he’s found products (leveraged and inverse exchange-traded funds) that will not only protect his portfolio but also allow him to strike big when things turn ugly. Spoiler: we don’t think it’s very likely. His market outlook is not unfounded, but these products are not made to deliver anything like the Big Short.

About 18 months ago, individual investor Jeremy Kher injected about 5% of his portfolio into Horizons’ BetaPro S&P 500 VIX Short-Term Futures ETF (HUV) at around $6 a unit. Since then, HUV has declined to approximately $3, causing his position to register a 50% loss. “I don’t care,” he shoots, “and I even plan to buy more of it. I also plan to diversify into other ETFs, like HSD (BetaPro S&P 500 -2x Daily Bear ETF) and HIX (BetaPro S&P/TSX 60 Daily Inverse ETF). Instead of putting money in cigarettes, I have this ETF. It’s money in the bank for very bad days ahead.”

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
BetaPro S&P 500 VIX ST Futures ETF75.65 CAD-2.17
BetaPro S&P 500® -2x Daily Bear ETF11.55 CAD-7.00
BetaPro S&P 500® 2x Daily Bull ETF22.64 CAD6.79
BetaPro S&P/TSX 60 Daily Inverse ETF6.00 CAD-1.96

About Author

Yan Barcelo  is a veteran financial and economic journalist with more than 30 years of experience, writing for many publications in Toronto and in Montreal, including CPA MagazineLes Affaires and Commerce.