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. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Inverse ETF

    An exchange-traded fund (ETF) that is constructed by using various ...
  4. Index ETF

    Exchange-traded funds that follow a specific benchmark index ...
  5. Synthetic ETF

    An investment that mimics the behavior of an exchange-traded ...
  6. Passive ETF

    One of two types of exchange-traded funds (ETFs) available for ...
Related Articles
  1. ETFs & Mutual Funds

    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.
  2. ETFs & Mutual Funds

    Building An All-ETF Portfolio

    Balance is the key when selecting an all-ETF portfolio that will hedge against market volatility.
  3. 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.
  4. Investing

    A Look At the Growth Of the ETF Industry

    Explore the phenomenal growth rate of the ETF industry, and learn some of the principal reasons why ETFs are projected to continue to grow at a rapid pace.
  5. ETFs & Mutual Funds

    4 Ways to Evaluate ETFs Before Buying

    Learn four areas in which to evaluate an ETF investment to be sure that the investor has a clear understanding of the security being purchased.
  6. ETFs & Mutual Funds

    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.
  7. ETFs & Mutual Funds

    The Advantages of ETFs Compared to Index Funds

    With the ongoing ETF boom, ETFs gain more variety and increased competition in the market leads to further investors' advantages compared to index funds.
  8. ETFs & Mutual Funds

    Are Your ETFs Too Risky? Learn How to Evaluate Them

    Learn how to identify ETFs with greater risk and volatility. See why some investors include higher volatility ETFs in pursuit of greater returns.
  9. ETFs & Mutual Funds

    ETFs Can Be Safe Investments, If Used Correctly

    Learn about how ETFs can be a safe investment option if you know which funds to choose, including the basics of both indexed and leveraged ETFs.
  10. ETFs & Mutual Funds

    4 Things to Know Before Choosing an ETF

    ETFs are a low-cost way to get exposure to different markets. But they're not all the same. Investors should research the following key information regarding the ETF before buying it.
RELATED FAQS
  1. Are ETFs a good choice for someone who's curious about trading for the first time?

  2. Is there an ETF composed of other ETFs?

  3. 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 >>
  4. 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 >>
  5. Besides stocks, what other asset classes can I invest in through ETFs?

    Discover the extremely far-reaching range of investment asset classes that are available to investors through exchange-traded ... Read Answer >>
  6. 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 >>
Hot Definitions
  1. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  2. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  3. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  4. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  5. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  6. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
Trading Center