Ultra ETF

DEFINITION of 'Ultra ETF'

A class of exchange-traded funds (ETF) that employs leverage in an effort to achieve double the return of a set benchmark. The first ultra ETFs were launched in 2006 and the class has grown to include different ETFs with underlying benchmarks ranging from broad market indexes, such as the S&P 500 and Russell 2000, to specific sectors, such as technology, healthcare and basic materials.

BREAKING DOWN 'Ultra ETF'

According to the prospectuses for these funds, they may not achieve double the return of the benchmark during flat markets. Long-run returns may also diverge from the desired return; the ultra ETFs' only aim is to achieve twice the daily return, which they have done fairly accurately in the short time they can be analyzed.

Ultra ETFs can be beneficial to investors who are short on capital or allocation space within a diversified portfolio. For example, they can invest 5% of their portfolios into an ultra ETF and gain closer to 10% exposure due to the leveraged returns.

Increased daily volatility is both the biggest benefit and greatest danger of ultra ETFs. They are best suited to short-term investing strategies or quick trading to maximize a given bet in the market. The expense ratios also run much higher than for standard ETFs, as most charge 0.95% of the total assets.

RELATED TERMS
  1. ETF Of ETFs

    An exchange-traded fund (ETF) that tracks other ETFs rather than ...
  2. Inverse ETF

    An exchange-traded fund (ETF) that is constructed by using various ...
  3. Intelligent ETF

    An exchange-traded fund (ETF) that employs an active investment ...
  4. Sector ETF

    A class of exchange-traded fund that invests in the stocks and ...
  5. Stock ETF

    A security that tracks a particular set of equities, similar ...
  6. Relative Return

    The return that an asset achieves over a period of time compared ...
Related Articles
  1. Mutual Funds & ETFs

    Exchange-Traded Funds: Equity ETFs

    The first ETF was developed to create diversified portfolios based on equity indexes. Because equities are a core asset class for investment portfolios, it is important for investors to understand ...
  2. Mutual Funds & ETFs

    Top 10 Most Traded Leveraged ETFs (UVXY, SDS)

    Discover how leveraged ETFs work and why they are popular among traders. Learn about the 10 most traded leveraged ETF in the marketplace today.
  3. Personal Finance

    Top 5 Reasons To Keep Leveraged ETFs To The Pros

    Leveraged ETFs can result in large gains, but also huge losses. Is it worth your time and money to look into them?
  4. Mutual Funds & ETFs

    Building An All-ETF Portfolio

    Balance is the key when selecting an all-ETF portfolio that will hedge against market volatility.
  5. Mutual Funds & ETFs

    Why Leveraged ETFs Don't Always Boost Returns

    These ETFs don't always provide the returns you expect. Find out why this happens, and what you can do about it.
  6. Mutual Funds & ETFs

    Volatility Can Drag On Leveraged ETF Gains

    The pros (many) and cons (several) of investing in S&P 500 leveraged ETFs.
  7. Stock Analysis

    5 Leveraged ETFs with Knockout Recent Returns

    These leveraged ETFs floored investors with their knockout returns over the last year and are still going strong.
  8. Investing

    5 Signs It's Time to Dump Your ETF

    You’ve bought into your favorite ETF, and it's been a great ride. When should you exit? Here are the top signals to exit an ETF position.
  9. Mutual Funds & ETFs

    Leveraged ETFs: Are They Safe? (BLK, WETF)

    Discover why leveraged ETFs are not necessarily a doomsday product. Learn the opinions of BlackRock’s Larry Fink and other industry experts on these products.
  10. Financial Advisors

    Why You Should Avoid Some ETFs

    Despite the popularity of ETFs, not every one is a solid bet, and not every ETF is built to last. Here's what an investor should consider.
RELATED FAQS
  1. Do ETFs pay capital gains?

    Learn about exchange-traded funds (ETFs), which can generate capital gains for their shareholders due to occasional and substantial ... Read Answer >>
  2. Are there leveraged ETFs that track the metals and mining sector?

    Understand what a leveraged ETF is, and learn about leveraged ETFs that track the metals and mining sector and are available ... Read Answer >>
  3. What are the most common leveraged ETFs that track the drugs sector?

    Discover the most common leveraged exchange-traded funds that investors can use for magnified results in the pharmaceutical ... Read Answer >>
  4. Are there leveraged ETFs that follow the retail sector?

    Read about leveraged exchange-traded funds (ETFs) that track the retail sector, and why using leveraged ETFs can be a boom-bust ... Read Answer >>
  5. Are ETFs a good choice for someone who's curious about trading for the first time?

  6. Who regulates the various types of exchange traded funds (ETFs)?

    Discover who regulates various types of exchange-traded funds. The share of investment capital going towards ETFs continues ... Read Answer >>
Hot Definitions
  1. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  2. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  3. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  4. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  5. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center