Many Inverse Treasury Bond ETNs and ETFs Down Over 23% in 2014
Treasury yields in 2014 continued to decline, even as the Federal Reserve System (The Fed) ended its bond-buying program in October, as expected. Due to the inverse correlation of bond yields and bond prices, as treasury yields decline, Treasury bond prices increase. Several inverse Treasury bond investment funds, some leveraged and some not leveraged, actively trade in the US in the form of exchange traded funds (ETFs) and exchange traded notes (ETNs).
ETFs and ETNs are set up to track the daily performance of an underlying index or strategy, sometimes 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 funds that track Treasury bonds were down over 23% each in 2014:
| Ticker | Fund Name | 2014 Performance |
| TMV | Direxion Daily 20 Year Plus Treasury Bear 3x | -56.39% |
| TTT | ProShares UltraPro Short 20+ Year Treasury | -55.64% |
| SBND | PowerShares DB 3X Short 25+ Year Treasury Bond ETN | -52.47% |
| TBT | ProShares UltraShort 20+ Year Treasury | -41.43% |
| DLBS | iPath U.S. Treasury Long Bond Bear ETN | -39.20% |
| DTYS | iPath U.S. Treasury 10-Year Bear ETN | -27.67% |
| TYO | Direxion Daily 7-10 Year Treasury Bear 3x | -27.29% |
| TBF | ProShares Short 20+ Year Treasury | -23.53% |
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 inverse Treasury bond securities, you may have options to recover your investment loss. If your advisor failed to fully disclose the risks of investing in inverse Treasury bond 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 inverse Treasury bond 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.