Don Dion's Weekly ETF Blog Wrap

Don Dion posts his current insights on the stock, bond, commodity and currency markets in his RealMoney blog , anticipating which ETFs will be in play next. This week, among his blogs featured below, he wrote about developments in UBS, Treasury bonds and Chinese banks.

Leveraged ETFs are in trouble, and the latest blow comes from UBS, which suspended purchases of leveraged and inverse ETFs for clients. UBS said "the short-term nature of these securities is generally inconsistent with the long-term view of investing that UBS advocates when building client portfolios."

UBS Suspends Buying of Leveraged ETFs

Posted 7/27/2009 at 4:19 p.m. EDT

Considering the stricter regulations on daytrading in the wake of the dot-com bubble, it makes sense that brokers would limit access to securities that are designed to be daytraded. Additionally, both the long- and short-leveraged products have lost money in some cases. This may be a case of brokers wanting to protect their less sophisticated investors from buying a product that they do not fully understand, but everyone will be affected by lower volume and liquidity due to these restrictions.

It seems many brokers haven't done their homework on these products, because they've offered them without examining what the ETFs are intended to do. A reasonable policy would be to allow sophisticated investors (such as those with options, margin or futures trading permission) access to leveraged and inverse ETFs. In some cases, it may be that ETFs are not the proper way to gain access to certain markets, although much older leveraged mutual funds have suffered from similar compounding problems.