Series 65: Non-Traditional ETFs

Non-Traditional ETFs

ETFs, as just described, are called traditional ETFs, in contrast to the riskier non-traditional ETFs, which were introduced to the markets in 2006. Leveraged ETFs use derivative products such as equity futures and swaps to receive daily returns two to three times above the returns of the index they are tracking. They usually have a multiplier in their names, such as 2x or 3x, to represent how many times the performance of the index they are designed to produce. The term “ultra” can also signify a leveraged ETF. For example, a triple-leveraged ETF is one that projects returns three times the tracked index.

Inverse ETFs use similar derivative products to profit from the decline of an index of underlying stocks. Both of these products are complex and carry high risks. They are designed to yield their perform