Part 2: Short and Leveraged ETPs Explained

Your capital is at risk if you invest. You could lose all your investment.

Please see the full risk warning at https://leverageshares.com/en/risk-disclosures/.

Our Short & Leveraged Single-Stock ETPs could be challenging for some investors looking for new innovative products to add to their portfolio. In this six-part educational series, we describe the idea behind our products, their construction, features and their benefits to investors as well as when compared to other similar-seeming products.

Contents
  1. Our Short (Or “Inverse”) ETPs
  2. Our Leveraged ETPs
  3. Benefits of Short and Leveraged ETPs

Leverage Shares’ Single-Stock ETPs offer investors the opportunity to either amplify the gains or reverse the trend of the underlying stock. The ETPs track the underlying stock such that a daily leveraged return is calculated. The portfolio manager will trade the underlying stock for the fund that the ETP belongs to reflect this ending value as closely as possible.

Our Short (Or “Inverse”) ETPs

Our Inverse ETPs come with a leverage factor of -1x. In other words, investing into a -1x ETP over a day is equivalent to a -1x daily short position in the underlying stock for that same day.

Consider our -1x (short) Facebook ETP (FBS.L) as an example, which is built with the underlying stock (NASDAQ: FB). This ETP tracks the iSTOXX Inverse Leveraged -1X FB Index. Here is what the performance of FBS versus FB over a single week – from the 7th to the 11th of December 2020 – looks like:

For more information on the costs payable for this class of products, please refer to the “Cost of Products” section in our introductory article of this series

For more examples on the effective usage of our inverse products, please read a previous article highlighting the value of these products.

Our Leveraged ETPs

Our Leveraged ETPs come with a leverage factor of 2x (double leveraged) and 3x (triple leveraged). In other words, investing into a 2x/3x ETP would give a magnified exposure to the daily performance of the underlying stock.

Consider our 2x (long) Amazon ETP (AMZ2.L) as an example, which is built with the underlying stock (NASDAQ: AMZN). This ETP tracks the NYSE Leveraged 2x AMZN Index.

Also, consider our 3x (long) Amazon ETP (AMZ3.L) which is built with the same underlying stock. This ETP tracks the iSTOXX Leveraged 3X AMZN Index.

Here is what the performance of AMZ2 and AMZ3 versus AMZN over a single week – from the 23rd to the 27th of November of this year – looks like:

Note: U.S. markets were closed on the 26th of November on account of Thanksgiving but the LSE was not.

For more information on the costs payable for this class of products, please refer to the “Cost of Products” section in our introductory article of this series.

The date range was selected to highlight two effects:

  1. On market holidays, the ETP levels will remain unchanged as long as the underlying’s price remains unchanged.
  2. The best performance of this class of products occurs when there is trend of increasing price levels in the underlying. In other words, for leveraged products, “the trend is your friend.”

For more examples on utilizing insight or market sentiment to your advantage, please refer to a previous article highlighting the utilization of either leveraged or inverse products, depending on the situation.

Benefits of Short and Leveraged ETPs

We had covered the benefits of our products in detail in our previous entry in the series: our products have mitigated risk, lower costs relative to competing products, can be purchased without a margin account, limited in loss to only the amount invested and – depending on the investor’s country – very likely to accrue enhanced tax benefits as well.

With respect to our inverse products: one aspect of keen interest among investors has been the prospect of effectively “going short” without actually “shorting”. That is, buying our -1x ETP is similar to selling a stock as far as the payoff estimates are concerned. Foregoing the hassle of covering one’s short position and maintaining margins to support said position is an undeniable advantage for the investor.

Another key benefit to purchasing S&L ETPs is the limited capital outlay. The minimum amount that can be purchased is just one share – while some brokers may even allow for the purchase of fractional shares. In this model, investors are free to invest a percentage of the total cost of one share instead of the entire amount. This facility has begun to attract a large number of investors to the marketplace who earlier felt “priced out” on account of the high values of the stocks they were interested in.

Your capital is at risk if you invest. You could lose all your investment.

Please see the full risk warning at https://leverageshares.com/en/risk-disclosures/.

Education Series: Single-Stock ETPs

Authored by

Sandeep Rao

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A quick study on the effects of market behaviour on the returns of a 3X ETP vs a 2X ETP.
A quick study on the effects of market behaviour on the returns of a 3X ETP vs a 2X ETP.

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