Part 6: Six Things To Know About Our ETPs

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. Underlying Price Does Not Fully Reflect ETP Levels
  2. Be Careful Which Index You’re Comparing Your Strategy Against
  3. Closing Price and NAV Need Not Be At the Same Level
  4. ETP Levels Can Change Overnight
  5. Currency Fluctuations Can Confound Some Investors
  6. Low AUM Does Not Mean Low ETP Liquidity

Over this educational series till now, we have summarised the 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 this part of the series.

2. Be Careful Which Index You’re Comparing Your Strategy Against

Our ETPs track the Net Total Return (NTR) index of the underlying single-stock index and not the price index. A price index only considers price movements while the NTR index includes dividends, interest, rights offerings, and other distributions realized over a period of time. While the NTR method is generally considered to be a more precise form of measurement, its trajectory can often be distinct from that of a price index.

The paying out of a dividend by a company often reflects favourably on its ability to continue operations or is considered as a signal to investors regarding the company management’s commitment to continually enhance the company’s value.

However, while the NTR index is being tracked for the ETP, the investor does not receive any portion of the dividends paid out on the underlying stock. The dividends that we receive while physically holding the underlying stock to build these products are reinvested in purchasing more shares of the underlying stock in order to better manage the changes in exposure required to maintain the promised leverage factor on a daily basis.

3. Closing Price and NAV Need Not Be At the Same Level

Our ETPs are, of course, exchange-traded products. This means that, very often, the ETP price you see on your trading screen would be based on the fair price calculated and paid by another investor.

Assume a certain amount of time has passed since the last trade in a particular ETP (say 5 minutes). If the underlying has moved on from its price since the ETP was last traded, the Fair Value of the ETP has now changed. When you decide to enter into a trade at this point, the price will be related to the changed Fair Value and not the last ETP price you see.

Also, the NAV for each ETP is calculated as per the price seen at the end of the day in the US exchange and not based on the last price seen when the ETP is traded in the LSE or Euronext. For instance, NYSE and Nasdaq close at 21:00 GMT while the LSE and Euronext close at 16:30 GMT and 17:30 GMT, respectively.

4. ETP Levels Can Change Overnight

While the ETP cannot be traded once the LSE or Euronext closes for the day, the underlying stock doesn’t stop trading; trades on the stock continue to be made around the world.

This means that the Fair Value of the ETP continues to change in tandem with the underlying stock even if the ETP cannot be traded. Therefore, there can be a significant variance between the quoted price of an ETP near the market close on one day and the quoted price for that same ETP at the start of trading in the next. To prevent the prospect of significant fluctuation, a cautious investor would be well-advised to sell the ETP near end of market hours and reinvest the next morning.

Please read our previously published article on how our ETPs track U.S. stock performance for more examples.

5. Currency Fluctuations Can Confound Some Investors

In our previously published article highlighting how our ETPs track U.S. stock performance, we had discussed how the FX market fluctuates 24 hours a day. This will certainly impact the price of the ETP since they are quoted in non-US currencies while the underlying stock and index are quoted in U.S. dollars.

A savvy investor with a large investment in our ETPs is well-advised to consider hedging their currency exposure if they consider their portfolio to be sensitive to currency fluctuations. We offer European investors an investment opportunity into the performance – be it leveraged or inverse – of leading U.S. stocks but do not have currency hedging built into the same product.

6. Low AUM Does Not Mean Low ETP Liquidity

The liquidity of an ETP ultimately depends on the liquidity of the underlying stocks. Some of our ETPs may periodically have low AUM (“Assets Under Management”, i.e. amount invested as per the underlying stock’s Fair Value) on account of its recent launch or by a shift in strategy by large investors.

Depending on the liquidity of the underlying stock, we can create ETPs in large volumes very close to the fair value of the ETP based on investor demand.

And finally, it doesn’t hurt a savvy investor to take a look at our FAQ to see if all their concerns are allayed. If not, please email us.

Education Series: Single-Stock ETPs

Authored by

Leverage Shares

Share this:

Share on facebook
Share on twitter
Share on xing
Share on whatsapp
Share on telegram
Share on email

Related Posts

Search

Search
Generic filters
Exact matches only
Search in title
Search in content
Search in excerpt
Filter by Categories
AAPL
AMD
AMZN
BA
BABA
BARC
BP
C
CRM
Education
ETPs
FB
Featured
GOOG
GS
HSBC
HSBC
Insight
Insights
JPM
Market Insights
MSFT
MU
NFLX
NVDA
PYPL
RDS
Research
Research
SHOP
SQ
TSLA
TWTR
UBER
Uncategorized
Uncategorized
Uncategorized
Uncategorized
V
VOD
Websim
ZM

Welcome to Leverage Shares

Terms and Conditions

Notice

If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website and to register your details so we have a record for the future, however we will not send you any materials directly.

If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Elective Professional Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.

This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2. The contents of this website have been approved under S21 of the Financial Services and Markets Act 2000 by Resolution Compliance Limited. Resolution Compliance Limited is authorised and regulated by the Financial Conduct Authority (FRN 574048).

This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.

Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.

This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.

United States Visitors

The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.

Persons accessing this website in the European Economic Area

Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).

Exclusion of Liability

Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.

Risk Warnings

The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.

Leverage Investment

Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.

Cookies

Leverage Shares Management Company may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes (click here for more information). These are statistical data about users’ browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking ‘I agree’ below, you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps Leverage Shares Company provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.

By clicking you agree to the Terms and Conditions displayed.