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Video The advantages of trading leveraged ETFs (Leveraged etf trading)

Hector McNeil from WisdomTree Europe looks at Leveraged (Exchange Traded Funds) ETFs, what they are and the benefits of trading them. ETFs, like.

Leveraged ETFs are a version of an ETF that gives an enhanced return equal to a leveraged
factor. And the leveraged factors tend to be -1x, 2x or 3x up to 5x.
If you take for example, the FTSE 100 and you traded it 3x leveraged product. If the
market goes up by 2% in a day, you'll get a 6% return. So what that essentially allows
you to do is have different strategies in the portfolio, you can enhance return, so
you get the same money to gain 3x the exposure or you can use a third of the money to gain
the same exposure as if you put a straight delta one trade on to the market.
The advantages are that it trades as a share so you can get very simple access through
the stock exchange if you've got a brokerage account with any retail broker. So you get
very easy access for relatively cheap, they tend to be around 60-80 basis points on an
annualised basis, which is .6 or 1% up per year. Which means that if you hold it for
one day, you'll pay 365th of that. And because it trades as a share, you can also hold it
in your equity account, which includes SIPPs and ISAs, which are very very straight forward
for investors to use.
The market globally is about bn in short leveraged ETPs. In Europe it's about bn,
so it's a relatively small market compared to the overall ETF market which is about 0bn
in Europe. But it's growing at a very rapid pace, in fact

it's growing probably a bit
quicker that the overall ETF market.
They're performing pretty well, they do what they say on the tin so if the market goes
down, they go down, if the market goes up, they go up. So obviously, it amplifies the
returns to you, you not only get the ability to enhance your returns if you get the trade
right, but you also get the ability to lose more money by amplifying the losses if you
get the call wrong. So really it all revolves around whether the client gets the trade right
or wrong at the end of the day. But I think where the growth is really coming is people's
attitude to ETFs generally and seeing them as a great tool to access asset management
exposures and given that they've not had the ability to leverage those until now, you know
people are taking that on board very quickly.
Well they are much more of a specialised product, so what I would say, is that it's really important
that investors understand what they're trading before they actually trade it. So I wouldn't
say it's for the common and garden investor, certainly for the more sophisticated investor
who can understand the returns that they're getting but also can actually bear the losses
that they could potentially get by having the leverage in there.

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