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In the world of leveraged Exchange-Traded Products (ETPs), there are two main structures: swap-based (synthetic) and physically-backed. While most other issuers have used the former until now, Leverage Shares ETPs are unique in their physical structure.
Let’s break down the two.
Swap-Based (Synthetic) Leveraged ETPs
In this setup, the ETP doesn’t own the assets it tracks. Instead, it enters into a contract (swap agreement) with a financial institution. The institution promises to pay the ETP the return of the index it tracks.
Here are some pros and cons:
Pros:
1. Limited tracking error: Generally, has lower tracking errors and can be more cost-efficient.
2. Diverse Asset Access: Can provide exposure to a broader range of assets, including those hard to hold physically.
Cons:
1. Counterparty Risk: Introduces a risk of the other party in the contract defaulting.
2. Complexity: Can be less transparent and hence – more complex, making it slightly harder for the average investor to understand.
Let’s break down these terms to help you make informed investment decisions.
Physically-Backed Leveraged ETPs (Leverage Shares ETPs)
Here, the ETP directly holds the assets it is tracking. This means it owns the physical assets, giving a direct exposure to the assets.
Let’s dissect the pros and cons:
Pros:
Transparency: More transparent since they hold the physical assets, offering a clear understanding of the investments.
Lower Counterparty Risk: Reduced risk of the other party in an agreement defaulting, as they hold the assets physically.
Yield on Short ETPs: Inverse ETPs directly short sell the respective asset. The cash proceeds are then held in a (in the current interest rate environment) interest yielding account. These return are passed on to ETP Shareholders, meaning the all-in expense ratio is minimized.
Cons:
Limited Exposure: The range of exposures the ETP can offer is limited, especially to less liquid or more complex markets.
Résumé
With over 150 ETPs listed across 4 UK/EU exchanges, Leverage Shares suite of ETPs cover multiple asset classes and leverage factors ranging from -5x to +5x.
Investors should carefully weigh the pros and cons of each structure when seeking leveraged exposure.
Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at
Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.
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This is a marketing communication. Please refer to the Prospectus of the ETPs and to the KIID before making any final investment decisions.
This information originates from Investium Limited, which has been appointed as distributor of Leverage Shares products in Europe by Leverage Shares Management Company Limited (the “Arranger”). Investium Limited with registered address at 6 Nikou Georgiou Street, Office 302, 1095 Nicosia Cyprus, is a financial services provider regulated by the Cyprus Securities and Exchange Commission (CySEC).
The information is intended only to provide general and preliminary information to investors and shall not be construed as investment, legal or tax advice. Investium Limited and the Arranger (together referred as “Leverage Shares”) assume no liability with regards to any investment, divestment or retention decision taken by the investor on the basis of this information. The views and opinions expressed are those of the author(s) but not necessarily those of Leverage Shares. Opinions are current as of the publication date and are subject to change with market conditions. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results. Information provided by third party sources is believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed.
All performance information is based on historical data and does not predict future returns. Investing is subject to risk, including the possible loss of principal. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Leverage Shares.
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This website is accessible to retail investors in the EU for informational purposes only. Leverage Shares does not directly distribute to retail investors. Retail clients should not rely on any of the information provided and should seek independent financial advice.
Information contained in this website is intended only to provide general and preliminary information and does not constitute any legal or investment advice, an offer to sell or solicitation to buy any security, including shares of any Exchange Traded Products (“ETPs”).
An investment in the promoted ETPs may only be made based on the ETPs´ legal documentation and will be subject to terms and conditions contained therein.
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. The ETPs shown on this website are not available for sale in the U.S. or to a U.S. person.
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This website is for informational purposes only.
Information contained in this website is intended only to provide general and preliminary information to EU regulated firms such as Investment Intermediaries and Asset Managers. This information does not constitute an offer to sell or solicitation to buy any security, including shares of any Exchange Traded Products (“ETPs”).
An investment in the promoted ETPs may only be made based on the ETPs´ legal documentation and will be subject to terms and conditions contained therein.
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. The ETPs shown on this website are not available for sale in the U.S. or to a U.S. person.
I acknowledge having my legal residence in the selected location.
Please confirm the Terms and Conditions by clicking on “I agree”.
This website is for informational purposes only.
This website is accessible to retail investors in the UK for informational purposes only. Leverage Shares does not directly distribute to retail investors. Retail clients should not rely on any of the information provided and should seek assistance from an IFA for all investment guidance and advice.
Information contained in this website is intended only to provide general and preliminary information and does not constitute any legal or investment advice, an offer to sell or solicitation to buy any security, including shares of any Exchange Traded Products (“ETPs”).
An investment in the promoted ETPs may only be made based on the ETPs´ legal documentation and will be subject to terms and conditions contained therein.
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. The ETPs shown on this website are not available for sale in the U.S. or to a U.S. person.
I acknowledge having my legal residence in the selected location.
Please confirm the Terms and Conditions by clicking on “I agree”.
This website is for informational purposes only.
Information contained in this website is intended only to provide general and preliminary information to FCA regulated firms such as Independent Financial Advisors (IFAs) and Wealth Managers. This information does not constitute an offer to sell or solicitation to buy any security, including shares of any Exchange Traded Products (“ETPs”).
An investment in the promoted ETPs may only be made based on the ETPs´ legal documentation and will be subject to terms and conditions contained therein.
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. The ETPs shown on this website are not available for sale in the U.S. or to a U.S. person.
I acknowledge having my legal residence in the selected location.
This website is intended for U.S. residents.
The content on this website is for informational purposes only and is educational in nature.
The material contained on this website is not intended as a recommendation to buy, sell or hold any security or to adopt any investment strategy.
This website is intended for U.S. residents.
The content on this website is for informational purposes only and is educational in nature.
The material contained on this website is not intended as a recommendation to buy, sell or hold any security or to adopt any investment strategy.