Leveraged ETF

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DEFINITION of 'Leveraged ETF'

An exchange-traded fund (ETF) that uses financial derivatives and debt to amplify the returns of an underlying index. Leveraged ETFs are available for most indexes, such as the Nasdaq-100 and the Dow Jones Industrial Average. These funds aim to keep a constant amount of leverage during the investment time frame, such as a 2:1 or 3:1 ratio.

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BREAKING DOWN 'Leveraged ETF'

A leveraged ETF does not amplify the annual returns of an index; instead it follows the daily changes. For example, let's examine a leveraged fund with a 2:1 ratio. This means that each dollar of investor capital used is matched with an additional dollar of invested debt. If one day the underlying index returns 1%, the fund will theoretically return 2%. The 2% return is theoretical, as management fees and transaction costs diminish the full effects of leverage.

The 2:1 ratio works in the opposite direction as well. If the index drops 1%, your loss would then be 2%.

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RELATED FAQS
  1. Are there leveraged ETFs that follow the retail sector?

    There are many exchange-traded funds (ETFs) that track the retail sector or elements of the retail sector, and some of those ... Read Full Answer >>
  2. Which leveraged ETFs can I buy to invest in the real estate sector?

    The leveraged exchange-traded funds, or ETFs, that investors can use to access the real estate sector include ProShares Short ... Read Full Answer >>
  3. Are there leveraged ETFs that follow the food and beverage sector?

    There are not currently any leveraged exchange-traded funds, or ETFs, that directly track only the food and beverage sector; ... Read Full Answer >>
  4. What methods can an investor use to get leveraged exposure to the chemicals sector?

    The best methods to gain leveraged exposure to the chemicals sector are to buy the ProShares Ultra Basic Materials ETF (UYM) ... Read Full Answer >>
  5. Can an investor use leveraged ETFs to invest in the airline sector?

    As of 2015, there are no leveraged exchange-traded funds (ETFs) available to track the airline industry within the transportation ... Read Full Answer >>
  6. What are the most common leveraged ETFs that track the drugs sector?

    The most common leveraged exchange-traded funds (ETFs) that track the pharmaceutical industry are the two offered by Proshares: ... Read Full Answer >>
  7. Are there leveraged ETFs that track the financial services sector?

    An exchange-traded fund (ETF) is a security that follows an index (or a set group of commodities or assets) but trades the ... Read Full Answer >>
  8. Are there leveraged ETFs that track the metals and mining sector?

    There are a limited number of leveraged exchange-traded funds that track the metals and mining sector. Investors utilize ... Read Full Answer >>
  9. Are there leveraged ETFs that track the oil & gas drilling sector?

    A few leveraged ETFs are used to track the oil and gas drilling sector, which includes vast, multinational companies such ... Read Full Answer >>
  10. Are there leveraged ETFs that track the utility sector?

    A couple of leveraged exchange-traded funds, or ETFs , track the utilities sector. One is the ProShares Ultra Utilities (UPW). ... Read Full Answer >>

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