Bridge over ocean
1 December 2020 Financial Analysts Journal Volume 77, Issue 1

Levered and Inverse Exchange-Traded Products: Blessing or Curse?

  1. Colby J. Pessina
  2. Robert E. Whaley

Inverse and levered ETPs are neither effective hedging tools nor useful as buy-and-hold investments. They are effective only when used for short-term bets on the direction of an asset. They are ill understood and inherently unstable.

Levered and inverse exchange-trade products (ETPs) are designed to provide geared long and short exposures to the daily returns of various benchmark indexes. The benchmarks may be any reference index, but the popular ones are indexes of stocks, bonds, commodities, and volatility. The problem with these products is that they are not generally well understood, particularly those with futures-based benchmarks. Levered and inverse ETPs are neither suitable buy-and-hold investments nor effective hedging tools. They are unstable and exist only as mechanisms for placing short-term directional bets. Levered and inverse products are not, and cannot be, effective investment management tools.
Read the Complete Article in Financial Analysts Journal Financial Analysts Journal CFA Institute Member Content
CFA Members Earn 2PL
Record PL credit Manage your Professional Learning credits
Publisher Information
Routledge doi.org/10.1080/0015198X.2020.1830660 ISSN/ISBN: 0015-198X

We're using cookies, but you can turn them off in Privacy Settings. Otherwise, you are agreeing to our use of cookies. Learn more in our Privacy Policy.