Top 10 Leveraged Alternative ETFs

NEW YORK ( ETF Digest) -- Why would an investor want to invest in one of these sub-sectors? One reason is portfolio protection against the deleterious effects of rising energy prices. These negative effects are eventually manifested in the stock market, through demand destruction, higher producer costs, and ultimately, less money in consumers' pockets.  Another reason is the general protection against inflation.  While the Fed denies it, some still expect the launch of QE3.  Most of the commodity sub-sectors will provide a measure of protection here. However, if that is the extent of the reason, there are Alt ETFs that offer a basket of commodities across all of these sub-sectors.   

Another reason is protection against erosion of the dollar's buying power.  For this, an entire other category of Alt ETFs are specifically suited -- currency ETFs.  There are many ETFs that invest in foreign currencies. By so doing, investors benefit from the appreciation of that currency relative to the dollar (which is the same thing as saying the depreciation of the dollar in terms of another currency). This can be the major currencies (Japanese Yen, Euro, British Pound, etc.) or more exotic currencies, like those of the BRIC countries (Brazil, Russia, India and China).  Again, there are baskets for investors that do not want to be country-specific.

There are fewer leveraged issues within the Alt sector to choose from. Leveraged issues fill several needs away from unleveraged issues available. Leveraged issues can help investor's hedge positions more quickly with greater impact. This aspect can also satisfy speculators wishing to catch up with fast-moving markets if late to a rapidly developing trend. In the latter case, if investors are successful in making up ground, they then can convert later to an unleveraged ETF.

One thing remains clear when dealing with leveraged issues of all types -- they must be traded. Investors wishing to participate in these issues must understand the higher risks associated with them including tracking issues, volatility and compounding effects given daily tracking features. Investors must be sophisticated and experienced in dealing strategies and products that inherently possess higher risks. We have found that successfully dealing in these requires a technical approach.

There is little purpose in ranking these ETFs given their different market coverage. While some track gold for example, perhaps liquidity considerations may favor one over another but little else.

ProShares and Deutsche Bank / PowerShares make up the featured listings. Newer shares from Velocity Shares are also mentioned as possibilities.  

The following charts are based on weekly presentations featuring 22 period moving averages, a Relative Strength indicator and conventional MACD moving averages. Not shown but perhaps referred to are Tom DeMark indicators which we use in conjunction with other proprietary indicators to determine our positions.

As mentioned above, the most important thing to know about leveraged issues is they must be managed actively. Given index tracking and compounding issues it's hard to sit on a position in a buy and hold fashion unless the trends are both strong and durable. This is of course impossible to know initially upon entering fresh positions.

To determine positions it is often most useful to track the relevant index, spot price or futures continuation contracts to which these leveraged products are linked versus these issues alone. Often erratic behavior of the leveraged issues can alter what might ordinarily be the right position. Further, the best experience in dealing with these issues is to use limit orders when engaging in them and matching those as best you can with the underlying indexes. Therefore, it's important in our opinion to remember to remain disciplined and systematic in using these issues.

We're presenting both the long and short leveraged major equity market ETFs in pairs. This is because there is a back and forth to the AUM (Assets under Management) for each bull and bear product given prevailing market trends. This alters liquidity considerations.