Brokers Take Leveraged ETFs off the Menu

One broker has suspended purchases of leveraged ETFs and others are reviewing policies or warning clients who buy them.

The Wall Street Journal’s Daisy Maxey reporter writes in Warning Signs Up for Leveraged ETFs that UBS Wealth Management has suspended purchases of leveraged ETFs and Morgan Stanley Smith Barney is reviewing how it sells them. Maxey also reports that Charles Schwab issued an unusual warning to clients who buy them.
Most leveraged ETFs are designed to track a daily return of a benchmark index. Because of compounding and leverage effects, holding the ETFs for longer than one day may result in unpredictable returns.
The top leveraged ETF managers include ProShares, Direxion and Rydex. Leveraged ETFs have become enormously popular. For example, the ProShares Ultra S&P 500 (SSO), which seeks to return 200% of the daily performance of the S&P 500, has attracted over $3 billion in assets and trades over 37 million shares per day.
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