New Leveraged ETNs Offer Innovation

by: Tom Lydon

Barclay’s has a new lineup of leveraged and inverse ET that are being called “potentially the most complex exchange traded product ever devised.”

According to David Nadiq at Index Universe, the notes – two long and three short – will offer investors exposure to leveraged returns linked to the performance, or inverse performance, of the S&P 500 Total Return Index. Nadiq notes that these new ETNs are much different that current leveraged and inverse exchange traded products because they will pay out based on “what if” benchmarks, making them highly complex investment vehicles.

Nadiq explains how it works this way:

To understand how these work, let’s take a look at the simplest product: the 2x long ETN, BXUC. Essentially, BXUC asks the following: Imagine you took $100, then borrowed another $100 and then you invested the whole $200 in the S&P 500: How much money would you have in Nov. 2014?

In addition to offering the risks involved in leveraged and inverse products, because they are ETNs, they carry credit risk, as well. Leveraged and inverse products are not for every investor, and they require a bit of education before you dive in. Be sure you understand them properly before you buy.

The five ETNs are:

  • ETN+ Long B S&P 500 (NYSEArca: BXUB), which will offer 3x initial leverage
  • ETN+ Long C S&P 500 (NYSEArca: BXUC), which will offer 2x initial leverage
  • ETN+ Short B S&P 500 (NYSEArca: BXDB), which will offer a direct inverse relationship with no leverage
  • ETN+ Short C S&P 500 (NYSEArca: BXDC), which will offer an inverse relationship with 2x initial leverage
  • ETN+ Short D S&P 500 (NYSEArca: BXDD), which will offer an inverse relationship with 3x initial leverage.

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