An exchange-traded fund (ETF) that uses financial derivatives and debt to amplify the returns of an underlying index. Leveraged ETFs are available for most indexes, such as the Nasdaq-100 and the Dow Jones Industrial Average. These funds aim to keep a constant amount of leverage during the investment time frame, such as a 2:1 or 3:1 ratio.
A leveraged ETF does not amplify the annual returns of an index; instead it follows the daily changes. For example, let's examine a leveraged fund with a 2:1 ratio. This means that each dollar of investor capital used is matched with an additional dollar of invested debt. If one day the underlying index returns 1%, the fund will theoretically return 2%. The 2% return is theoretical, as management fees and transaction costs diminish the full effects of leverage.
The 2:1 ratio works in the opposite direction as well. If the index drops 1%, your loss would then be 2%.
Investment dictionary. Academic. 2012.
Look at other dictionaries:
ETF Securities — Type Private, Employee owned Industry Investment management Number of locations Jersey, London, United Kingdom, Tokyo, Japan, New York, USA Products Exchange traded funds, Commodities, FX … Wikipedia
Index ETF — Exchange traded funds that follow a specific benchmark index as closely as possible. Index ETFs are much like index mutual funds, but whereas the mutual fund shares can only be redeemed at one price daily, the closing net asset value (NAV), index … Investment dictionary
Synthetic ETF — An investment that mimics the behavior of an exchange traded fund (ETF) through the use of derivatives such as swaps. Proponents of synthetic ETFS say they do a more accurate job of tracking indexes; critics say that synthetic ETFs face… … Investment dictionary
Ultra ETF — A class of exchange traded funds (ETF) that employs leverage in an effort to achieve double the return of a set benchmark. The first ultra ETFs were launched in 2006 and the class has grown to include different ETFs with underlying benchmarks… … Investment dictionary
Sector ETF — A class of exchange traded fund that invests in the stocks and securities of a specific sector, typically identified in the fund title. Most sector ETFs focus on U.S. based stocks, but several will invest globally in an attempt to capture the… … Investment dictionary
Exchange-traded fund — An exchange traded fund (ETF) is an investment fund 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… … Wikipedia
List of exchange-traded funds — This is a table of notable exchange traded funds, or ETFs. ETFs in various nations The ETFs available on exchanges vary from country to country. Many of the ETFs listed below are available exclusively on that nation s primary stock exchange and… … Wikipedia
floor — A lower limit for a variable, such as the lower limit on an interest rate paid or received in a transaction. For example, an adjustable rate loan may have a floor of 5 percent. In that example, the rate can adjust however loan terms provide, but… … Financial and business terms
Gold exchange-traded product — Gold exchange traded products are exchange traded funds (ETFs), closed end funds (CEFs) and exchange traded notes (ETNs) that aim to track the price of gold. Gold exchange traded products are traded on the major stock exchanges including Zurich,… … Wikipedia
Gold exchange-traded fund — Gold exchange traded funds (or GETFs) are special types of exchange traded funds (ETFs) tracking the price of gold. Gold exchange traded funds are traded on the major stock exchanges including Mumbai, London, Paris and New York.HistoryThe idea of … Wikipedia