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ETFs 110: Handle with Caution: Leveraged Exchange-Traded Funds

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1.
A long-term investor considering investing in leveraged ETFs is probably better off _______.
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Adjusting their asset allocation. Due to the high costs and the volatility drag, a long-term investor is usually better off adjusting their asset allocation rather than holding a leverage ETF.
2.
Due to their speculative nature, leveraged ETFs are suitable for average investors.
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False. As a rule, they are more suited to professional traders, who can monitor and trade their positions daily.
3.
Over longer periods of time, an ETF's reduction in return due to volatility is known as _______.
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Volatility drag. Volatility drag is the term used to describe the detrimental affect of volatility on long term, compound returns.
4.
Over longer periods of time for the bull and bear leveraged ETFs, _______.
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It is common for both to have a negative rate of return. Due to the volatility drag, which reduces the return over longer periods of time, it is common for most bull and bear pairs to both have negative returns.
5.
In order to provide amplified daily returns, leveraged ETFs may use swaps.
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True. Swaps and other derivative contracts may be used to help augment returns.