What if I lost money in ETFs?

Exchange Traded Funds (ETFs) continue to dominate the news as the hottest investment in Wall Street. In fact, many of them are great, they combine wide diversification with low costs, an excellent recipe for individual investors. Inevitable with the creation of something useful, is the variations on that thing. In this case it is a series of products called “Non-Traditional ETFs” or “Leveraged and Inverse ETFs.”

If you were sold leveraged or inverse ETFs, you may have a claim to recover those losses from the broker-deal that sold them to you.

These Non-Traditional ETFs are only intended to be held for a short time period, usually a day, and are not designed to match the performance over time of the index they track.

Leveraged ETFs are intended to deliver a multiple of the index or benchmark they track, such as two times the daily performance of the S&P 500. Inverse leveraged ETFs are intended to deliver an inverse multiple of the index or benchmark they track, such as twice the opposite of the daily performance of the S&P 500.These Non-Traditional ETFs are intended to be held for a single day as part of a complex trading strategy by sophisticated investors, such as hedge funds.

These investments are per se unsuitable for retail investors who plan to hold them for longer than one trading session.

Indeed, non-traditional ETFs are so complex, speculative, and risky that FINRA is concerned about the suitability of their sales to pension plans because “even institutional customers that have the general capability to assess risk” may not be able to understand them.  FINRA Regulatory Notice 07-43.

What we have found is exactly what the SEC has expressed as a concern, that investors have an expectation that the ETFs will perform in the long term the same as their daily stated goal. They won’t. https://www.sec.gov/investor/pubs/leveragedetfs-alert.htm

This means that even if the underlying market performs in the direction you hope, given the leverage and daily reset of these products, you might get the opposite result.

The SEC put together examples to explain what is known in the industry as the tracking error, but basically given the way these are leveraged, any volatility could cause losses even when you expect gains. It gets worse and magnifies the more there are changes in the price of the underlying stocks. There is no reason for any broker to be selling individual investors these non-traditional ETFs as part of a buy and hold strategy. If you own any of these ETFs, or others like them, and have suffered losses, you may have a claim to recover those losses. Give us a call to discuss your case. 

Examples of these products include:

TQQQProshares UltraPro QQQ
SSOProShares Ultra S&P 500
FASDirexion Daily Financial Bull 3X shares
FLGECredit Suisse FI Large Cap Growth Enhanced ETN
QLDProShares Ultra QQQ
UPROProShares UltraPro S&P 500
FBGXUBS AG FI Enhanced Large Cap Growth ETN
FIHDUBS AG FI Enhanced Global High Yield ETN
NUGTDirexion Daily Gold Miners Bull 3X Shares
UYGProShares Ultra Financials
SPXLDirexion Daily S&P 500 Bull 3X Shares
SDSProShares UltraShort S&P 500
JNUGDirexion Daily Junior Gold Miners Index Bull 3X Shares
TNADirexion Daily Small Cap Bull 3X Shares
UDOWProShares UltraPro Dow30
FIEEUBS AG FI Enhanced Europe 50 ETN
SOXLDirexion Daily Semiconductor Bull 3X Shares
TECLDirexion Daily Technology Bull 3X Shares
SPXUProShares UltraPro Short S&P 500
TZADirexion Daily Small Cap Bear 3X Shares
DUSTDirexion Daily Gold Miners Bear 3X Shares
SQQQProshares UltraPro Short QQQ
YANGDirexion Daily China 3X Bear Shares
LABDDirexion Daily S&P Biotech Bear 3X Shares
RUSSDirexion Daily Russia Bear 3X Shares
BZQProShares UltraShort MSCI Brazil
ZBIOProShares UltraPro Short Nasdaq Biotechnology
FXPProShares UltraShort China 50
EDZDirexion Daily Emerging Markets Bear 3X Shares
SPXSDirexion Daily S&P 500 Bear 3X ETF
SHProShares Short S&P 500