What is a leveraged index fund?

Question

and what are some examples of leveraged index funds?

Answer 1

In general, leverage is using debt or derivatives to control more shares than you can with cash. If you buy stocks on margin, you are leveraging because you own more shares than you could with just the cash in your account. If things go well, leverage increases your gains, but it can also increase your losses.

Derivatives allow leverage without the burden of interest payments. A leveraged stock index fund uses derivatives to make or lose a lot of money based on small movements in the index, and it holds a lot of cash. If everything works out right, the fluctuation in the derivatives will cause the fund price to move 200% or 150% as much as the index each day, depending on how leveraged the fund is. Rydex and maybe Profunds offer this type of leveraged funds that track a few big indices like the S&P500. There are also a few ETF's that do the same thing. I think these are in the Proshares line but I'm not certain. To add to the fun, there are a few index funds that go short on an index, and a few of them are available with a leveraged option.

Answer 2

1

Answer 3

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Answer 4

Indices are lists of stocks, bonds, etc. Their value is computed by a formula, usually an average or weighted average. Index funds are mutual or exchange-traded funds that track an index. Indexes are available for the Dow Jones, S&P 500, Russell 2000, and just about any grouping of stocks or bonds you can define.

Index funds buy "baskets" containing the list of index components. They buy more baskets of the list as more investors buy fund shares, or sell them baskets of the index stock as investors redeem them. Done right, the index fund price closely tracks the index, or multiple thereof.

Leveraged index funds use a combination of stocks and options in the basket to create a multiplier effect of x1, x2, or the inverse, -x1, -x2. A 2x inverse leveraged index fund for the Nasdaq 100, for instance would fall at twice the rate that the index rises. QQQQ (an exchange traded fund that tracks the Nasdaq 100) rises. Compare QQQQ with RYVNX, for an example.

Here's a list of some inverse ETF's

Ticker Index
DOG -1x DJ Industrial Average
DUG -2x DJ U.S. Oil & Gas
DXD -2x DJ Industrial Average
MYY -1x S&P Mid-Cap 400
MZZ -2x Mid-Cap 400
PSQ -1x NASDAQ 100
QID -2x NASDAQ 100
REW -2x DJ U.S. Technology Index
RWM -1x Russell 2000
RXD -2x DJ U.S. Health Care
SBB -1x S&P SmallCap 600 index
SCC -2x DJ U.S. Consumer services
SDD -2x S&P SmallCap 600 index
SDP -2x DJ U.S. Utilites
SDS -2x S&P 500
SH -1x S&P 500
SIJ -2x DJ U.S. Industrials
SKF -2x DJ U.S. Financials
SMN -2x DJ Basic Materials
SRS -2x DJ Real Estate Index
SSG -2x DJ U.S. Semiconductor
SZK -2x DJ U.S. Consumer goods
TWM -2x Russell 2000

Answer 5

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Answer 6

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