Leveraged ETF Offers Double the Gains of Financial Stocks

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The article discusses the ProShares Ultra Financials (UYG) ETF, which provides twice the daily performance of the S&P Financial Select Sector Index. This leveraged ETF allows investors to gain magnified exposure to the financial sector without using margin in their brokerage account. However, the leverage can also amplify losses, especially over the longer term.

Why it matters

The ProShares Ultra Financials ETF offers a way for investors to make a short-term leveraged bet on financial stocks, which could be appealing for those with high conviction that the sector will rally. But the leveraged nature of the fund also means it carries more risk, as losses can accumulate quickly if the financial sector declines.

The details

The ProShares Ultra Financials ETF aims to deliver double the daily returns of the S&P Financial Select Sector Index, which tracks 76 financial stocks. This allows investors to gain leveraged exposure to the sector without using margin. However, the fund's leverage can also amplify losses, especially over the longer term. For example, if financial stocks fall 2% in a day, the fund would lose 4% of its value.

• The article uses the financial sector's performance from November 1 to December 23 as an example, where the ProShares Ultra Financials ETF returned 12% compared to 5.8% for the unleveraged Financial Select Sector SPDR ETF (XLF).
• Over the last six months, the article notes that financial stocks have declined by about 1%, while the ProShares Ultra Financials ETF has lost nearly 14% due to fees, expenses, and leveraged losses on down days.