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Home > Investor News > Complaints Growing Over Suitability Of Leveraged, Inverse ETFs

Complaints Growing Over Suitability Of Leveraged, Inverse ETFs

Investor complaints about leveraged and inverse exchange traded funds (ETFs) are apparently resonating with state securities regulators.  According to Keith Woodwell, director of the Utah Commerce Department Division of Securities, leveraged and inverse ETFs have, for the first time, found their way on the regulator’s top 10 watch list of “investor traps.”

“The concern is that they’ve become very mainstream,” said Woodwell in a Sept. 28 article in Investment News. “It is specifically related to complaints about leveraged and inverse ETFs. We’ve had complaints in Utah, and I know of other states as well.”

Leveraged ETFs are designed to return a multiple of the daily performance of the stock index they track. Many investors fail to understand this concept and, instead, may buy a leveraged ETF and hold it for a year, putting them at a huge financial risk. Meanwhile, inverse ETFs use derivatives to create a security that profits from a decline in the underlying index or benchmark.

The issue troubling regulators is how leveraged and inverse ETFs are being marketed to investors.

“Is it being marketed to someone as a buy and hold kind of product,” Woodwell asked in the Investment News article. “It doesn’t perform the way you might expect, and if that’s not disclosed to the clients upfront, that’s where the suitability issues come in.”

“I don’t think that brokers are pushing these particularly hard. Sometimes I think some of the agents themselves may not understand fully how the leveraged or inverse ETFs work,” Woodwell added.

Maddox Hargett & Caruso currently is investigating sales of leveraged and inverse exchange traded funds on behalf of investors. If you believe your broker/dealer or financial adviser misrepresented the facts concerning these products, please Contact Us.

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