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Frequently Asked Questions


Q: What are Leverage Shares ETPs?

Leverage Shares exchange traded products (ETPs) seek to deliver two times (2x) the daily performance of individual household name stocks.

Leverage Shares ETPs:

  • Can be efficient tools for gaining magnified exposure to individual stocks
  • Achieve leverage through margin borrowing
  • Have physical ownership of the underlying stocks, and therefore do not use swaps or other derivatives to achieve their exposure
  • Do not have credit risk, because each series of the special purpose vehicle (SPV) has physical ownership of the underlying stocks and does not use derivatives, like swaps, to achieve its leverage
  • Trade in real time on the London Stock Exchange (LSE)
  • Prevent investors from losing more than their initial investment
Q: Who is Leverage Shares, PLC?

Our Exchange Traded Products (ETPs) aim to help a variety of market participants express a targeted opinion on individual stocks with transparent and efficient leveraged investment solutions.

See our ‘About’ page for additional information about Leverage Shares and our partners.

Q: What is an ETP and how is it different from an ETF?

The term “Exchange Traded Product” (ETP) is a broad term that encompasses Exchange Traded Funds (ETFs), Exchange Traded Commodities (ETCs), and Exchange Traded Notes (ETNs). ETPs seek to provide returns based on the price movements of an underlying asset or benchmark, such as an index, commodity, or individual stock. However, ETFs, ETCs, and ETNs represent different structures for achieving this exposure and can pose different risks.

ETPs, such as ETCs and ETNs, are structured as debt securities, but unlike conventional bonds, these instruments pay no interest and are not rated. ETPs can give investors a means of diversifying investment portfolios without the need to:

  • Enter into swap agreements or forward contracts
  • Take physical delivery of the underlying commodity
  • Hold securities that constitute the underlying index

Importantly, ETPs are different than ETFs in a number of ways. ETPs (including ETCs and ETNs) are not funds, and therefore lie outside the remit of UCITs — the Undertakings for Collective Investments in Transferable Securities.

However, while ETPs are not UCITS compliant, they may be UCITS eligible. This means that they are investments which — while again not themselves compliant with UCITS — are capable of being an eligible investment for another UCITS fund.

Q: How do Leverage Shares ETPs achieve their leverage?

Leverage Shares Exchange Traded Products (ETPs) are debt instruments issued by a special purpose vehicle (SPV). Each ETP is a separate Series of the SPV, and is a debt security that delivers the returns of the assets held by the Series. Each Series invests its own assets and the assets borrowed on margin in a single stock, such as the common stock of Apple Inc. (AAPL), to achieve leveraged exposure to that equity as per its investment objective.

  • Exposure to the underlying stock is managed to deliver two times the return (gain or loss) of the underlying stock on a daily basis (net of fees and expenses)
  • Leverage Shares do not have credit risk because each Series of the SPV has physical ownership of the underlying stocks and does not use derivatives, like swaps, to achieve its leverage
  • Each ETP is fully collateralized, as its subscription proceeds are invested directly in shares of the underlying equity security, effectively negating potential credit risk
  • Leverage Shares ETPs have access to institutional pricing for margin borrowing, and therefore can be a cost-effective means for investors to gain leveraged exposure to individual stocks
Q: Who should consider using Leverage Shares ETPs?
  • Experienced investors with knowledge of leveraged Exchange Traded Products (ETPs)
  • Investors with high risk tolerance
  • Investors who can afford to lose some or all of their investment
  • Investors who understand the daily compounding of leveraged ETPs and its effects on long-term returns
  • Investors who have the time and ability to monitor their investments on a daily or intra-day basis
Q: How should Leverage Shares ETPs be used?

Experienced investors and market participants may use Leverage Shares Exchange Traded Products (ETPs) for a variety of strategies, including but not limited to:

  • Responding to technical indicators on particular individual stocks
  • Trading the volatility and the directionality of individual stocks
  • Positioning or responding to earnings and news announcements
  • Reacting to overnight movements in foreign markets, which may carry momentum into the home market
  • Hedging existing exposures in a portfolio
Q: How can I trade Leverage Shares ETPs?

Leverage Shares Exchange Traded Products (ETPs) can be traded through brokerage accounts that have the ability to trade products listed on the London Stock Exchange. Investors do not typically need a margin account in order to trade Leverage Shares ETPs

Q: What’s the difference between leveraged ETPs that use margin to achieve their levered exposures and those that use swaps?

Leveraged Exchange Traded Products (ETPs) that use margin borrowing to achieve leveraged exposures invest their own assets plus assets borrowed through a margin account directly in the shares of the underlying companies.

This method incurs borrowing costs related to margin borrowing, but avoids credit risks since it physically owns the underlying shares.

Swap-based leveraged ETPs do not invest directly in the underlying stocks and instead enter into over-the-counter (OTC) swap agreements with a counterparty. These swaps can have associated costs as well as be susceptible to credit risk.

Q: Do Leverage Shares ETPs have credit risk?

Leverage Shares Exchange Traded Products (ETPs) do not invest in over-the counter (OTC) derivatives like swaps or forwards and therefore do not have credit risk.

Q: Can I lose more than I invested in a leveraged ETP?

No. The most an investor can lose in a Leverage Shares ETP is the entire value of their initial investment plus any reinvested dividends.

Q: What is the currency impact of investing in Leverage Shares?

Leverage Shares Exchange Traded Products (ETPs) provide exposure to stocks that are listed in the US, UK or Italy. However, because the Leverage Shares ETPs are listed in London and may trade in currencies (e.g., GBP, USD, EUR) that are different from the currency of the underlying security, certain Leverage Shares ETPs will expose investors to foreign currency movements. For example, the Leverage Shares ETPs that are listed in GBP but which invest in US companies will reflect the currency movements between the British Pound (GBP) and the USD (US dollar). In this example, if the USD appreciates versus the GBP, this can positively impact the fund’s returns, while a depreciation of the USD versus the GBP is expected to negatively impact the returns.

Q: Who provides margin to Leverage Shares ETPs?

The margin provider for Leverage Shares Exchange Traded Products (ETPs) is Interactive Brokers. For more information on our partners, please see the ‘About’ page.

Q: What is the Margin Rate that is used for the Leverage Shares ETPs?

The Margin Rate for each Leverage Shares ETP is the respective Benchmark Rate plus one percent (1%).  Leverage Shares uses internationally recognized benchmarks on overnight deposits as a basis for determining the Benchmark Rates.  For each ETP, the Benchmark Rate is determined by the base currency of the underlying equity security for the respective ETP, according to the following schedule:

Base Currency of Underlying Equity Security  Benchmark Rate
GBP GBP LIBOR (Overnight Rate)
USD Fed Funds Effective (Overnight Rate)
EUR EONIA (Euro Overnight Index Average)
Q: What are some risks associated with owning leveraged ETPs?
  • Higher Risk/Reward: Leveraged Exchange Traded Products (ETPs) provide magnified exposure to an underlying asset or benchmark and therefore can both gain or lose money much faster than investing in the underlying investment without leverage
  • Daily Compounding Risk: To meet its objective of doubling the daily returns of an asset’s or benchmark’s performance, the leveraged ETP must rebalance, or re-leverage, its position every day. Over a longer holding period, the daily rebalancing may result in returns that do not equal the specified multiple of the benchmark due to the effects of compounding
  • Investors can lose up to, but not more than, the full value of their investment, particularly in a volatile market environment
  • The full risk warnings should be read before purchasing a leveraged ETP (they can be found here)
Q: Who is the index provider for Leverage Shares ETPs?

The index provider is the New York Stock Exchange. More information about the index provider can be found at nyse.com

Q: Does Leverage Shares offer short (e.g., -2x) ETPs?

No, Leverage Shares Exchange Traded Products (ETPs) only provide long exposure to the underlying security.

Q: Do Leverage Shares ETPs pay dividends?

No, dividends from investments in the underlying security are reinvested.

Q: Are Leverage Shares ETPs UCITS-eligible?

Leverage Shares ETPs are in fact eligible* as Undertakings for Collective Investment in Transferable Securities (UCITS), meaning they can be invested in by other UCITS-compliant funds. However, Leverage Shares ETPs themselves are not UCITS-compliant.

*Disclaimer: UCITS eligibility subject to the specific UCIT schemes’ investment and borrowing powers as outlined in its Prospectus and legal instruments constituting the UCITS scheme.

 

 

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