ETF NEWS - ULTUMUS

Wisdomtree Leveraged Cars

Written by Bernie Thurston | 7 March 2022

WisdomTree adds four more leveraged ETFs

WisdomTree has launched four more speculative short and leveraged ETFs in Europe, this time targeting sectors of the European economy.

 

  • WisdomTree STOXX Europe Travel & Leisure 2x Daily Leveraged (2TRV)
  • WisdomTree STOXX Europe Travel & Leisure 2x Daily Short (2STR)
  • WisdomTree STOXX Europe Automobiles 2x Daily Leveraged (2CAR)
  • WisdomTree STOXX Europe Oil & Gas 2x Daily Short (2OIG)

 

The indexes are taken as “supersectors” from Stoxx Europe 600, the parent index. The UK and Switzerland are included in the definition of Europe. Each index is market weighted, however less liquid stocks can have their weights capped.

 

The funds use swaps to give daily magnified and magnified inverse exposure to these indexes. The level of magnification is 200% (or 2x).

 

WisdomTree has over 100 short and leveraged ETFs with more than $1.8 billion under management.

 

The long funds charge 0.80% management fees. The inverse charge 0.85%.

 

Bernie’s commentary – ever seen LQQ’s long term performance?

A lot of people pour scorn on leveraged and inverse ETPs (hello Morningstar). Their criticism of course always comes from the fact that the swaps reset every day. Meaning that over longer periods of time, leveraged and inverse ETFs don’t provide 2x or 3x the performance of the index. The critics often simply assume that retail investors will misunderstand them.

 

There’s a lot of truth to this, but there are a lot of offsetting benefits that these types of funds provide too.

 

These include the ability of advisers to take market risk out of a portfolio. (Advisers will often have, say, an S&P 500 ETF in their clients’ portfolio. And then offset some of it by buying an inverse S&P 500 ETF to reduce the net long). And the ability to “crowd out” riskier types of derivatives like put options, where retail punters can lose more money than they put in.

 

But perhaps the most important strength is that for younger investors with high risk tolerance, the leveraged long ETFs can be valid tools for wealth accumulation. (You can get rich buying houses with leverage, why not shares?) If you ever get some spare time, check out the long-term performance of Lyxor’s LQQ. The results may astound you.

 

I’m not sure any of the above will be useful for long term wealth accumulation. (Although the environmentalist in me hopes that 2OIG will be). They seem a lot more designed for punters wanting to bet on the reopening trade. Still, in investing it always helps to keep an open mind.