New ETFs Seek a Boost With Leverage

It seems like every month the Securities and Exchange Commission approves more and more new exchange-traded funds. In fact, at least 10 firms have a total of 291 ETFs waiting for SEC approval.

ProShares launched 22 funds on Feb. 1. Each of the funds tracks a Dow Jones index covering a narrowly focused industry group. Eleven of the new funds take the positive or long side, rising as the index rises. The other 11 take the short side, rising as the indices fall. The funds use leverage in an attempt to return twice the performance of the indices.

It is true that these new ETFs intentionally lack diversification by being industry-specific. But the 200% leverage does allow an investor to balance a portfolio with half as much cash equity.

For traders, the leverage amplifies small movements and the ability to bet an industry will fall, both without the use of a margin account. ...