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Secretary of State William Galvin Launches Investigation Into Leveraged ETF’s (FAZ, FAS, BGU, BGZ)

|Includes: FAS, FAZ, Direxion Daily S&P 500 Bull 3x Shares ETF (SPXL), SPXS

Secretary of State William Galvin of Massachusetts’s has launched a formal review of the sales practices of leveraged exchange-traded funds (ETF’s) which are designed to magnify the market’s daily performance.  Galvin says he’s concerned about the returns and costs of the increasingly popular financial products.

Galvin said he has sent letters to a trio of leveraged ETF providers including Rydex Investments, Direxion Funds and ProShares. “Because these leveraged exchange traded funds are reset every day, buy-and-hold investors often find that their returns vary greatly from those of the corresponding index,” Galvin said in a press release. “So it is important that retail investors be provided with all the information necessary to make informed choices about these products.” FINRA, which regulates securities firms, last month released an advisory notice reminding firms of their sales-practice obligations in connection with leveraged ETFs.  SEE OUR FINRA STORY HERE

Leveraged products such as the 3X ETF’s sponsored by Direxion have gained popularity with investors and traders.  The products make major swings in the market allowing traders to use these ETF’s without margin and at a reduced cost.

Disclosure: No positions