Did You Suffer Investment Losses Due to Recommendations to Invest in Leveraged ETFs?
Posted on Tuesday, April 14th, 2020 at 2:08 pm
Erez Law is currently investigating brokers across the country who recommended their clients invest in leveraged exchange-traded funds (ETFs), following significant declines when the market crashed due to the COVID-19 pandemic (the coronavirus of the winter and spring of 2020). Many of these investments had low assets and did not have a viable path forward or they are being liquidated due to huge losses experienced in the past few weeks. For others, the volatility was too much for them, in addition to high trading costs and significant losses, causing some funds to close their doors.
The following Leveraged ETFs & ETNs have closed since March 9, 2020:
- Credit Suisse X-Links Monthly Pay 2x Leveraged Alerian MLP Index ETN (AMJL)
- ETRACS 2x Leveraged Long Wells Fargo Business Development Company ETN Series B (LBDC)
- ETRACS 2x Leveraged Long Wells Fargo Business Development Company Index ETN (BDCL)
- ETRACS 2x Monthly Leveraged Alerian MLP Infrastructure Index ETN Series B (MLPQ)
- ETRACS 2x Monthly Leveraged S&P MLP Index ETN Series B (MLPZ)
- ETRACS Pay 2x Monthly Leveraged Closed-End Fund ETN (CEFL)
- ETRACS Pay 2x Monthly Leveraged Closed-End Fund ETN Series B (CEFZ)
- ETRACS Pay 2x Monthly Leveraged Diversified High Income ETN (DVHL)
- ETRACS Pay 2x Monthly Leveraged Mortgage REIT ETN (MORL)
- ETRACS Pay 2x Monthly Leveraged Mortgage REIT ETN Series B (MRRL)
- ETRACS Pay 2x Monthly Leveraged MSCI US REIT INDEX ETN (LRET)
- ETRACS Pay 2x Monthly Leveraged U.S. High Dividend Low Volatility ETN (HDLV)
- ETRACS Pay 2x Monthly Leveraged US Small Cap High Dividend ETN (SMHD)
- ETRACS Pay 2x Monthly Leveraged Wells Fargo MLP Ex-Energy ETN (LMLP)
- ETRACS Reset 2x Monthly Leveraged ISE Exclusively Homebuilders ETN (HOML)
- ETRACS ProShares 3x Daily Inverse Crude ETN linked to the Bloomberg WTI Crude Oil Subindex ER (WTID)
- ETRACS ProShares 3x Daily Long Crude ETN linked to Bloomberg WTI Crude Oil Subindex ER (WTIU)
- iPath US Treasury 10-year Bear ETN (DTYS)
- iPath US Treasury Long Bond Bear ETN (DLBS)
- ProShares UltraPro 3x Crude Oil ETF (OILU)
- ProShares UltraPro 3x Short Crude Oil ETF (OILD)
- ProShares UltraPro Financial Select Sector (FINU)
- ProShares UltraPro Nasdaq Biotechnology (UBIO)
- ProShares UltraPro Short Financial Select Sector (FINZ)
- ProShares UltraPro Short Nasdaq Biotechnology (ZBIO)
- VelocityShares 1x Daily Inverse VSTOXX Futures ETN (EXIV)
- VelocityShares 1x Long VSTOXX Futures ETN (EVIX)
- VelocityShares 3x Inverse Crude Oil ETN (DWT)
- VelocityShares 3x Long Crude Oil ETN (UWT)
On March 17, 2020, UBS announced it was liquidating the UBS ETRACS Monthly Pay 2x Leveraged Mortgage REIT ETN Series B (MRRL), a popular exchange-traded note (ETN) with a 20% yield. The leveraged product suffered massive losses in REITs, triggering an early redemption clause. Learn more about these ETNs here.
Direxion is an ETF provider that offers dozens of highly leveraged funds to retail investors. They are suffering from a downside that spawns from using derivatives.
The Direxion Daily Gold Miners Bear 3X ETF (DUST) returned nearly 200% between March 5-13, 2020. However, following the peak on March 13, DUST dropped more than 80% in value. In normal market conditions, triple-leveraged funds such as these are risky. However, the situation is exacerbated by the current liquidity crisis and a CBOE Volatility Index (VIX) that is hitting “extreme” levels.
DUST, the Direxion Daily Junior Gold Miners Index Bull 3X ETF (JNUG) and the Direxion Daily Gold Miners Bull 3X ETF (NUGT), are reducing exposure to their specific industries. Instead of using a triple-leverage strategy, DUST is reducing their exposure to just two times the underlying index; they are to be renamed the Direxion Daily Gold Miners Bear 2X ETF. This change will take place in mid-May 2020.
To make matters worse, DUST disconnected from its underlying index. Additionally, DUST’s premium spiked 24%, and its discounts sunk to -8%. While DUST is a risky investment during normal market conditions, the current “bear” market has created additional risks, including a lack of liquidity and the possibility of disconnecting from its underlying asset.
Erez Law is investigating whether brokers recommended their clients invest in leveraged ETFs and did not adequately explain the risks associated with these investments. Unfortunately, brokers may not have explained to these investors the potential risks to their investments and now these investors have now suffered significant investment losses in the wake of the global coronavirus pandemic.
Brokers at brokerage firms across the country that did not disclose the significant risks involved with investments in leveraged ETFs may be liable to their customers for their losses in FINRA arbitrations.
Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, brokerage firms across the country may be liable for investment or other losses suffered by its customers.
Erez Law represents investors in the United States for claims against brokers and brokerage firms for wrongdoing. If and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.