Leveraged Short Russel 2000 ETFs Down Over 28% in 2014
The Russell 2000 Index, which consists of the smallest 2,000 companies in the Russell 3000 Index, had the worst performance of any major US market index in 2014 by gaining 3.52% for the year. The Russell 2000, better known as small caps, experienced more volatility over the year, especially during broad market pullbacks, due to the small size of the companies in the index. Many investors see small caps as leading indicators, because they are usually the first companies to benefit (or suffer) from macroeconomic trends. Several inversely leveraged Russell 2000-focused investment funds, however, which actively trade in the US in the form of exchange traded funds (ETFs), performed poorly in 2014.
Leveraged ETFs are set up to track the daily performance of an underlying index or strategy, usually by two or three times in the same (bull) direction or inverse (bear) direction, by purchasing or selling complex option and derivative contracts in addition to the underlying securities.
The following inversely leveraged funds that track the Russell 2000 were down over 28% each in 2014:
|Ticker||Fund Name||2014 Performance|
|TZA||Direxion Daily Small Cap Bear 3x||-29.29%|
|SRTY||ProShares UltraPro Short Russell 2000||-28.14%|
Leveraged funds are specifically structured for traders looking to time the market and realize short-term profits based on the underlying index making single-day moves. Leveraged funds are generally not suitable for long-term investors, as the investment will ultimately lose value or significantly underperform, over a longer term, compared to its stated objective. In fact, Direxion Funds, a leader in leveraged ETFs, puts this disclosure in bold print on its web-page for each of its leveraged funds: “The fund should not be expected to provide [the multiple] times the return of the benchmark’s cumulative return for greater than a day.” Therefore, these leveraged funds are highly unsuitable for long term investors.
If your financial advisor or stockbroker recommended that you invest in inversely leveraged Russell 2000 securities, you may have options to recover your investment loss. If your advisor failed to fully disclose the risks of investing in inversely leveraged Russell 2000 securities, then you may have a claim for misrepresentation. If your investment objective was to only invest in safe and stable investments, you may have a claim for unsuitability. If inversely leveraged Russell 2000 securities made up a large portion of your portfolio, then you may have a claim for over-concentration and lack of diversification. If your advisor purchased this fund without your knowledge, you may have a claim for unauthorized trading. If your advisor purchased this fund on margin, you may have a claim for excessive use of margin and negligence.
The attorneys at Carlson & Associates, P.A., located in Miami, Florida, represent investors who have lost money due to the improper conduct of financial advisors. If you would like to have a free consultation, we can be reached at (305) 372-9700 to discuss your options.