INVESTORS NATIONWIDE BEWARE - ACTIVELY TRADED ETFS WILL ADD RISK TO YOUR PORTFOLIO!

The Securities and Exchange Commission (SEC) recently unveiled a policy change that could have a major impact on an exchange traded fund's (ETFs) risk profile. In essence, the SEC has lifted its suspension on the use of derivatives by certain ETFs. This move is in response to pressure from the industry, and it is expected to result in a major increase in the number of actively managed ETFs. Managers will now be able to use derivatives in their investment strategies in order to hedge against risk. Problem is derivatives are also widely used to speculate in order to increase profits, which most certainly increases risk. Fortunately, the SEC is keeping its freeze in place for leveraged and inverse exchange traded funds - funds that can deal a bigger blow to investors because of their use of borrowed funds to increase profits.
ETFs are investment funds that are traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index, such as a stock index or bond index and are attractive investments because of their low costs, tax efficiency, and stock-like features. By owning an ETF, investors benefit from the diversification of an index fund as well as the ability to purchase as little as one share. In addition, expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, investors pay the same commission to their brokers that they would pay on any regular stock order.
Investors should be concerned with the lifting of the derivatives suspension for ETFs because it will most likely affect management's investment strategy and investors' portfolios. Currently, there are 7,149 mutual funds and 1,444 ETFs. Approximately 6,836 mutual funds are actively managed, and only 54 ETFs are actively managed thus far. With expectations of a rise in actively traded ETFs, Investors and their advisors should review their ETF holdings for any changes in investment strategy and determine whether it is suitable for them. That way, investors can avoid learning the hard way what actively traded ETFs are all about and prevent future monetary losses.
Have you suffered losses resulting from actively traded ETFs? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is actively investigating and accepting clients with valid claims against stockbrokers who misrepresented and sold unsuitable investments such as actively traded ETFs to investors.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

ET - SYNTHETIC ETFS - GO HOME!

Synthetic ETFs are complex, very risky, require active analysis and monitoring and are not suitable for the average long-term "buy and hold" retail investor. A synthetic ETF can be a basket of investments involving stocks, bonds, commodities, currencies, options, swap contracts, swaptions, commodities futures contracts and other derivative instruments that track the performance of an underlying Index or market sector. The synthetic ETFs du jour fall in three categories: Leveraged ETFs, Inverse ETFs and Leveraged Inverse ETFs.
Leveraged ETFs use financial derivatives and debt to multiply the returns of an underlying Index. The managers of Leveraged ETFs attempt to maintain a constant amount of leverage throughout the investment at a 2:1 or 3:1 ratio. The manager's goal is to enhance the returns; if the underlying index returns 1%, the fund should theoretically return 2%. However, the leverage ratio increases the losses in a similar manner, a drop of 1% in the index would result in a 2% loss in the ETF managed on a 2:1 leverage ratio.
Inverse ETFs, also called "short" funds, use various financial derivatives to profit from a decline in the value of an underlying index. Investing in an Inverse ETF is similar to holding various short positions in order to profit from falling prices. An Inverse ETF that tracks a particular index seeks to deliver the inverse of the performance of that index. Inverse ETFs are often marketed as a way for investors to hedge their exposure in rapidly moving markets.
Leveraged Inverse ETFs, also called "ultra short" funds, seek to deliver return that is a multiple of the inverse performance of the underlying index. For example, a 2:1 leveraged inverse ETF attracts a particular index seeks to deliver double the inverse of that index's performance.
Leveraged and Inverse ETFs are intended as short-term investments. They are not meant to be held for longer periods of time. If held for more than one day, their performance can differ significantly from their stated objectives due to liquidity and other management performance issues. Leveraged and Inverse ETFs have also become the new tool of brokers seeking to turn clients' accounts to maximize their commissions. Leveraged inverse ETFs also require daily resets internally that make them less tax efficient than traditional ETFs.
Synthetic ETFs are unsuitable for most retail investors. The mantra for the long term "buy and hold" investor should be ET-Synthetic ETF-go home! If you have suffered losses investing in any Synthetic ETF then you should call the Law Offices of Robert Wayne Pearce P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.