Leveraged ETF

Categories: Index Funds

See: Exchange-Traded Fund (ETF).

An LETF is just an ETF...but with debt. So you can imagine owning an ETF on, say, the telecommunications industry, which is already, on its own, leveraged 3-4 times debt-to-EBITDA. But then add to this balance sheet volatility, the notion that you have an ETF that is itself leveraged 2:1.

So a given ETF, already leveraged 3:1, inside a fund leveraged 2:1, is then net leveraged 6:1.

If things go well, then wow, awesome...and if they don't, well...gather a bonfire of $100 bills and find someone who smokes to light the first match.

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Finance: What Are ETFs?275 Views

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Finance allah shmoop shmoop what are efs Well first this

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is the random financial terms you want to be asked

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in the financial term spelling bee and second you should

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know that e t f stands for exchange traded fund

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f's are kissing cousins of index funds with one key

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subtle but important difference f don't change at least generally

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speaking an index fund might reflect the transportation industry and

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have so much exposure to ford gm united airlines tesla

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etcetera But it's required tohave say sixty five percent of

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its exposure to companies based in the united states in

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its charter every month that index fund has to re

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balanced that exposure So if the auto companies do very

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poorly in a given month index fund has to re

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balance by buying mohr shares of those auto companies to

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make up the difference you know given that they've performed

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poorly relative toa airlines trucking company's railroads jeff howard segways

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and so on But in a t f the fund

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is basically set once and the shares just really kind

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of float if over a decade the auto companies do

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really well then in an e t f the auto

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companies will just have a dominant influence on the overall

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performance of the fund The management company doesn't have to

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buy and sell shares regularly in an e t f

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till fulfill the legal promises it agreed to at the

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outset of the fund in the way in index fund

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re balances its shares by buying and selling them So

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what does that mean to you Well it means that

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fc may drift in given directions like this guy For

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example a generic technology e t f might have had

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a total exposure of say five percent to internet stocks

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in the beginning of nineteen ninety seven but amazon ebay

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yahoo netflix and a well performed massively better than the

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broader technology market which did well but just not omg

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dot com well so that five percent waiting twenty years

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later might be more like fifty percent or mohr of

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that particular e t f but one other key aspect

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of it is that it's traded like a stock i

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e in one block and trade throughout the day there's

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a bid and an ask price The bids are all

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added up and shares in the fund can be bought

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And sold at any time throughout the day Although the

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market sets the price of an f just like it

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does on a stock Well there now you're all ready

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for the financial term spelling bee And they might also

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ask you to spell lipo Yeah you might want to 00:02:33.69 --> [endTime] write that one on your arm

Find other enlightening terms in Shmoop Finance Genius Bar(f)