Structure of ETFs: Differences Between First-, Second-, and Third-Generation ETFs

Abstract

Short/leveraged ETFs have become one of the hottest new products in investment management. Designed typically to provide 2x leveraged returns on daily index movements, they have become a vital investment tool for investors looking to gain leveraged exposure to both rising and falling markets. But despite the meteoric growth of these products, they have received some negative publicity in the United States and have come under scrutiny from the Securities and Exchange Commission and some investment firms. This article aims to address these points and explain why investors largely misunderstand these products and how they can be used in portfolios to enhance investment returns.