Buzz Archive:
Rebalancing Act - A Primer On Leveraged and Inverse ETFs

by Raymund Wong, CFA, CPA, ABV and Kara Hargadon of NERA Economic Consulting, 1/26/2010

A leveraged exchange-traded fund (ETF) is a financial instrument that seeks to deliver a daily return that is a multiple of the return of an underlying index, while an inverse ETF seeks to deliver a daily return equal to the opposite of the return of an underlying index. For example, a 2x leveraged ETF may seek to deliver double the daily returns of the S&P 500 Index, while an inverse ETF may seek to deliver the opposite of the daily returns of the S&P 500 Index. An ETF may be both leveraged and inverse, meaning that it seeks to deliver daily returns that are a multiple of the opposite of the underlying index's daily return.

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