Leveraged ETFsBack in August I wrote about some of the pros and cons of using Exchange Traded funds (ETFs) and investment trusts as an alternative to conventional mutual funds.

One area of ETF investing that is often commented on by investors is the use of Leveraged ETFs.  It’s not really surprising when you see returns of 80% over a 6 month period (leveraged Soybeans) and more recently Leveraged Silver has gone up nearly 40% in 4 weeks – it’s easy to see why they are fast becoming one of the most popular types of ETF. However they don’t achieve this without some controversy and before you make the decision to use them there are some basics to understand.

What Are Leveraged Exchange Traded Funds (Leveraged ETFs)?

An ETF tracks indices or commodities in an attempt to emulate rather than improve on their underlying performance.  Leveraged Exchange Traded Funds or ‘Leveraged ETFs’ attempt to take this a step further by trying to outperform the index or commodity and not by a small margin.

Some of the most popular funds will be looking to produce 2 or 3 times the return of the correlating asset.

How Do Leveraged ETFs Achieve This?