Fidelity Investments became the latest to warn its customers about leveraged exchange-traded funds.
“Leveraged products are complex, carry substantial risks and are intended for short-term trading,” a warning to customers on Fidelity’s Web site said. “Most reset daily and seek to achieve their objectives on a daily basis. Due to compounding, performance over longer periods can differ significantly from the performance of the underlying index.”
The move by the Boston mutual-funds company comes as some brokers place constraints on sales of leveraged or inverse ETFs, or stop them outright. Morgan Stanley Smith Barney, a joint venture of Morgan Stanley and Citigroup, said last week that it is reviewing its sales practices regarding leveraged ETFs. Earlier, UBS’s UBS Wealth Management Americas suspended purchases of leveraged ETFs. LPL Investment Holdings of Boston prohibited sales of the leveraged ETFs that seek more than two times the long or short performance of their target index, and Ameriprise Financial of Minneapolis told its advisers to stop soliciting the purchase of the products.
Questions about the products’ suitability as long-term investments also have raised regulators’ concerns.
Fidelity didn’t return a call seeking comment. Asked last week about the issues surrounding leveraged ETFs, a Fidelity spokesman said that it makes the funds available to customers who wish to purchase them, and added, “We are aware of recent regulatory and industry discussion about these products, and we are carefully following that discussion.”
The Financial Industry Regulatory Authority in June issued a reminder to brokers and advisers, urging them to use care in selling inverse and leveraged ETFs.
Fidelity ‘Freedom’ Has Index Version
As pressure mounts for target-date funds to lower expenses, some managers are cutting costs by removing management fees or investing in some combination of lower-cost underlying funds.
for more: See The Wall Street Journal
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