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Levered ETFs Pose Risk SEC’s Jackson Says

Traders Magazine Online News, November 15, 2018

John D'Antona Jr.

It’s no secret that too much leverage isn’t good or a safe investment strategy. Especially if you’re an individual who is looking to retire soon. Securities and Exchange Commissioner Robert Jackson said, speaking recently at a Bloomberg and CFA Society of New York sponsored event in New York.

As first reported inBloombergQuint, Jackson, in remarks to the event’s attendees, said that investment products that use derivatives to improve returns are threatening the reputation of the $3.6 trillion market for exchange-traded funds.

“The risk with levered ETFs is that the entire asset class will be painted with this brush,” Jackson said, adding that he fears Americans will buy and hold these products in their retirement accounts, and then get a nasty surprise when they lose their money.

Bloomberg data indicates that exchange-traded products that use leverage account for just 1 percent of the exchange-traded market. ETFs and ETPs, like equities, have been subject to more volatility in the market recently due to geopolitical concerns and other market forces. ETPs backed by levered funds are even more volatile.

Bloomberg Quint reported  Jackson earlier this year demanded that more be done to address geared, or leveraged, ETFs as officials debate whether to ease the path to market for straight-forward funds via the so-called ETF rule.

“I want to be sure we address it before we give the industry what they want in the ETF space,” Jackson said.

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