The Globe and Mail reports in its Friday edition that some of the world's largest asset managers are proposing an overhaul in the way leveraged exchange-traded funds are sold to retail clients.
The Globe's Clare O'Hara and Mark Rendell write that a month of shocking losses in a number of high-profile leveraged oil ETFs, six asset managers, BlackRock, Vanguard and Charles Schwab, published a joint letter this week recommending stock exchanges and regulators narrow the definition of what can be called an exchange-traded fund, or ETF.
Leveraged, or derivative-based ETFs, can act in unexpected ways in moments of market stress, and the use of leverage can compound losses rapidly.
In Canada, the BetaPro Crude Oil 2x Daily Bull fund (HOU), run by Horizons ETFs Management, saw the value of its assets drop 87 per cent in a single day in April, as the price of oil futures contracts collapsed. Investors had piled into the fund in record numbers in April, and HOU was the most traded security on the Toronto Stock Exchange for the entire third week of that month. The Globe notes that those who tried a buy-and-hold strategy for the fund, which is designed explicitly for day trading, were almost entirely wiped out.
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