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
Over this educational series till now, we have summarised the potential benefits, construction and tracking of Leverage Shares’ Single-Stock ETPs that brings to the savvy investor many different opportunities to enhance their portfolio returns.
There are, however, a number of things that one would need to keep in mind.
1. Underlying Price Does Not Fully Reflect ETP Levels
Please bear in mind that Short and Leveraged ETPs (S&L ETPs) are complex instruments that can be risky. While a leveraged/inverse index uses the end-of-day price of the underlying stock to define the closing level of the index, the price of the ETP itself does not have direct linear relationship with the underlying stock itself.
The Net Asset Value (NAV) of the ETP is calculated shortly after the exchange closes for the day. The price of an ETP at any point of time (also known as its “Fair Value”) can be calculated as follows:
ETP Fair Value=NAV_0×[1+ΔU-Costs]
where:
N
AV0 = Most Recent ETP NAV and;
ΔU = Performance of underlying since NAV0 was calculated
The “underlying” here in case of Leverage Shares ETPs is a single-stock leveraged or inverse index offered by iSTOXX or NYSE.
The cost factor makes the relationship between the underlying and the ETP non-linear. In fact, to maintain clarity in conveying ideas, our research does not account for costs when displaying examples of viable strategies. The schedule of costs for ETPs is outlined in
Education
