Tradr Debuts Leveraged ETFs for Longer-Term Investors
For the first time since leveraged ETFs were introduced in 2006, investors and financial advisors can justify holding the aggressive strategies for more than one day at a time.
This week the Tradr ETF brand of AXS Investments rolled out eight leveraged ETFs that reset monthly and weekly as opposed to the traditional daily reset strategies that can trip up longer-term investors.
Whether the longer reset periods gain appeal among active traders and investors who are already holding the daily-reset ETFs longer than designers expected remains uncertain.
“We’re targeting active traders and fiduciaries who are not allowed to use daily ETFs because of the daily reset,” said Matt Markiewicz, head of product and capital markets at Tradr ETFs in New York.
Math Adds Up for Longer-Reset Leveraged ETFs
In addition to potentially capturing a slice of the financial advisor market that might be able to check the suitability box, Markiewicz said the longer reset periods will benefit investors who tend to hold the daily-reset strategies a week or longer.
The math adds up in favor of longer-reset ETFs for investors intent on sitting in the short-term strategies. But possibly the biggest advantage about resetting the leverage on a weekly and monthly basis, as opposed to daily, is that investors will be able to compare and contrast their leveraged exposure in these slightly nuanced strategies.
Will Longer-Term Leveraged ETFs Catch On?
“This takes the pressure off having to worry about getting out quickly,” said Eric Balchunas, senior ETF analyst at Bloomberg Intelligence.
“The one worry I have is whether it will increase the amount of rank speculation among retail investors, but I’m not here to judge,” he added.
The Tradr suite includes: the Tradr 2X Long SPY Weekly (SPYB), the Tradr 2X Long SPY Monthly (SPYM), the Tradr 2X Long Triple Q Weekly (QQQW), the Tradr 2X Long Triple Q Monthly (MQQQ), the Tradr 2X Long SOXX Weekly (SOXW) and the Tradr 2X Long SOXX Monthly (SOXM).
There are also single stock versions. The Tradr 1.75X Long NVDA Weekly (NVDW) and the Tradr 1.5X TSLA Weekly (TSLW).
“The smart thing is, they’re picking really popular ETFs to leverage,” Balchunas said. “This is the eye of the hurricane when it comes to volume, and that gives Tradr a fighting chance of success.”
One of the issues the longer resets aim to solve is the tracking error that can develop when daily-reset ETFs are held for longer time periods.
For example, the ProShares Ultra S&P 500 ETF (SSO), which offers two times daily exposure to the S&P, is up 30.5% this year, which compares to a 17.1% gain for the S&P.
Doubling the index performance adds up to 34%, exposing 400 basis points worth of tracking error.
Markiewicz says that tracking errors will still occur with the weekly and monthly reset products, but it won’t be as extreme, and the tracking should be very close if the ETFs are held for the specific weekly or monthly periods.