I recently started investing in a couple of double-leveraged ETN's, where I had never invested in any ETNs before. I had read an article on Seeking Alpha about CEFL and that initially picqued my interest. I looked on stocktwits for more info on the 2 ETNs that were mentioned; CEFL and MORL, but there were no comments yet with the first comment on April 15th on stocktwits regarding CEFL by @regnard: "$CEFL Any comment on this ETN?". As of this writing, there are a total of 4 comments, all from that same day, from the original poster and myself. There were many more comments on MORL started on Dec. 23rd by @mREITlover (Bill Schultz): "$MORL is an Exchange Traded Note (UBS vehicle) providing Monthly compounded 2x leveraged exposure to the $MORT Index, less fees." (his 3rd comment within 3 minutes). Since stocktwits provided very little in the way of discourse on these double-leveraged ETNs, I turned to Seeking Alpha, knowing full well that some of the commenters/'authors' there have very little if any qualification to opine on any subject. Nevertheless, I decided to heed the advice of Prof. Lance Brofman and the anonymous 'Left Banker' as Prof. Brofman's curriculum vitae on Seeking Alpha deemed him a valid source, and 'Left Banker' spoke with quite a bit of reason and imparted some knowledge as well. My thanks to both of them for their freely imparted wisdom.
I read the articles on Seeking Alpha on both ETNs (and comments, of course, of which they are both varied and voluminous!). The articles and comments provided quite a learning experience, with many opinions and facts offered in the process. There have been some wild accusations and some well thought out responses, and it was very hard for this neophyte to discern which was which. But, after reading all the articles and comments on Seeking Alpha through April 2nd I had made my mind up; I would invest in a starter position in both of these ETNs, so I ponied up my $49 for each one and plugged in my choices in my sharebuilder Roth IRA AIP (Automatic Investment Plan). I invested the same amount for 2 weeks, and then also added them to the other Roth IRA in our portfolio with cash from the sale of stock for a total investment to date of $1,757.00 for each ETN. Only my initial investment of $49.00 for each ETN in the first Roth IRA was before the ex-dividend date of April 9th. On April 22nd, CEFL paid $1.06 (a 25.96% annual return) and MORL paid $2.26 (a 55.35% annual return) on initial investments of $49.00 (made one day before the ex-dividend date). I intend to further invest no more than 2-5% of our total portfolio value in these ETNs, but only in our Roth IRAs. Currently, we have less than 1.5% invested and investment will be ongoing on an irregular basis until that threshold is reached.
Now, a word on why I will only invest in these monthly paying ETNs in our Roth IRAs; since the dividends are taxed as 'ordinary income' it only makes sense to invest in the account(s) where the consequences of taxes has no bearing, i.e. our Roth IRA accounts. In any other account the tax consequences would be too high, and that would add to the already high implied risk with these double-leveraged ETNs.
Please don't misconstrue this article as investment advice, because I am not qualified to offer same. I defer to more qualified sources. Do your own due diligence, and seek the advice of a qualified professional.
Disclosure: I am long CEFL, MORL.