ETF/No Load Fund Investing: More Leverage For Your Dollars

How much more leverage do you need? Apparently more than you have now. At least ProFunds seems to think so according to a MarketWatch article called “Over the Borderline.”

A few days ago, ProFund introduced 2 new funds, UBPIX and UFPIX. The first one, UBPIX, is an UltraLatin America fund designed to earn twice the upside of the New York Latin America 35 ARD Index. If you’ve held regular funds/ETfs with Latin American exposure, you know how fast these can move to the upside or downside. Adding 200% leverage, will add some volatility that should make any gambler jump with joy.

While this will work for some, I don’t think it will be a good idea for the faint of heart. It’s a new twist to supercharge returns in that area but, eventually, when these markets come back to reality, your portfolio will go down faster than free beer. Even using a trailing sell stop might not help since the leveraged move to then downside can be so fast and furious that your 10% stop might turn into a 20% one, or worse.

If this is too much action for you, then you might look at ProFunds’ other new offering, UFPIX, which is designed to reflect twice the downside movement of the Latin America 35 ARD Index. In other words it’s just the opposite. However, since markets tend to go down faster than they go up, this one maybe the tamer of the two.

In my advisor practice, I prefer not using any leverage, which is why I currently have no exposure to either of the above funds.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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