ETFs that give that give retail investors magnified exposure to individual stocks are booming. That could be an ominous sign for the market, and for the funds themselves as glitches emerge.
The volume would seem more likely to spike during downturns in the market, when general volatility rises, not well into a bull market, Sohn said. Their recent popularity could be a warning sign about euphoria among some investors."Pair this off with the continued surge of inflows to equity ETFs and it creates a developing case of hot sentiment. Keep in mind – year 3 of a bull market is often a trickier backdrop than the initial years off major market lows," Sohn said.
One of the big concerns around leveraged funds in general is that they are only designed to meet their stated return on a daily basis. Because of a characteristic often called"volatility drift," investors can expect leveraged long funds in particular to underperform the goal on the label over longer time horizons.
Return data from FactSet shows that, in the five trading days leading up to Thanksgiving, two major leveraged long MicroStrategy funds had multiple trading sessions where their return differed from the stated goal by more than 2 percentage points.have both turned to options to generate leverage in recent days because there wasn't enough supply in the swaps market, the firms behind the funds confirmed to CNBC, which could make it more difficult to achieve the goals of the funds.