There's now a juiced-up way to get 4 times the return of the S&P 500 — but it comes with many risks
A new product puts the leverage of high-powered hedge funds in the hands of the regular investor, allowing them to make a bet that moves 4 times the direction of the stock market on any given day.
The question is, will they want to? And should they, given the many risks that come with such a fast-paced strategy?
Bank of Montreal launched the Max SPX 500 4x leveraged ETNs, which will be the highest leveraged exchange traded product in the U.S., according to CFRA. The notes are based on the S&P 500 Total Return Index and will trade under the ticker «XXXX» beginning on Tuesday.
The launch of the 4x product comes at a time when retail investors and asset management firms are showing a renewed appetite for more volatile products.
Single-stock ETFs tracking major tech stocks like Tesla and Nvidia have started to find traction after launching last year. A fund focused on zero-day options launched in September. And many of the biggest ETF shops — including BlackRock's iShares — have filed with the SEC to create a bitcoin ETF, which is expected by many industry insiders to be approved early next year.
Investors have shown a preference for the higher leveraged funds, like the popular Direxion Daily Semiconductor Bull 3x Shares (SOXL) ETF.
«Looking at the trends and the data, it's very clear that the assets and the volumes tend to be more concentrated in the highest leveraged products and also the most volatile sectors,» said Aniket Ullal, the head of ETF and data analytics at CFRA.
Like most leveraged products, the XXXX notes are designed for short-term trading. The leverage is reset on a daily basis, and investors should not expect to get the return on the label if they hold onto the note for a long period of time.
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