Exchange Traded Funds (ETFs)

Exchange Traded Funds, or ETFs, are corporate structures that own a basket of underlying securities. The underlying securities may consist of stocks, bonds, or derivative products. Contrary to common belief, ETFs trade like equity securities and are subject to market volatility even if the underlying investments are fixed income oriented.

Many issuers of ETFs utilize leverage, often times 2x or 3x the underlying asset base, as part of their investment strategy to improve the return. This dramatically increases the risk of the ETF and may lead to substantial investment losses.

Other ETFs utilize “inverse” strategies that are intended to perform in a manner that is opposite to its benchmark. For example, there are inverse ETFs that track the overall performance of a sector of the market (e.g., gold, financials, technology). In the event that sector performs poorly, the inverse ETF will appreciate in value. Conversely, if the sector performs well, the inverse ETF will depreciate in value. Given the rapid pace at which financial markets move, leveraged and inverse ETFs often do not move in tandem with the benchmark, causing extensive investor losses.

The Wolper Law Firm has extensive experience handling claims involving ETFs. If your financial advisor or stockbroker recommended that you invest in ETFs, and you experienced losses, please contact the Wolper Law Firm for a free consultation to discuss your rights and options.