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Know the Basics

Leveraged & Inverse ETFs

These are Exchange Traded Funds designed to generate a multiple (such as 2X or -2X) of the performance of a reference security for a specified time period.
They are designed for sophisticated investors and traders who have a high conviction bullish or bearish view on how they expect the reference security to perform over the short term.
Leveraged ETFs are considered easier-to-use and lower cost than other methods of leverage, such as borrowing on margin or using options strategies.
Tradr ETFs employs total return swaps to achieve returns.

QUICK POINTS

  • ETF structure
  • Easy-to-use, low cost
  • For sophisticated investors
  • Use swaps

S-E-T: The 3 Levers of Leveraged ETFs

1

Security

What is the ETF’s

reference asset?
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The underlying asset for a leveraged ETF can be tied to one of three types of reference securities:
Index-tracking ETFs: For instance, the SPY ETF tracks the S&P 500 Index, and Tradr’s SPYM ETF uses the SPY ETF as its reference asset.
Actively managed ETFs: Tradr ETFs was the first to launch this type of product with SARK, which offers -2X (-200%) short exposure to the performance of the ARK Innovation ETF (ARKK).
Stocks: Tradr ETFs pioneered single stock leveraged ETFs in the U.S. NVDS and TSLQ provide short exposure and NVDW and TSLW provide long exposure to the common stocks of NVIDIA and Tesla, respectively.
2

Exposure

Does it invest short or long

and at what leveraged

multiple?
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Long or Short: If you are positive or have a bullish short-term view on a security, you would want long exposure. If you are bearish, you may take short (also known as “inverse”) exposure to seek gains when the price of a security goes down.
Leverage multiplier: For instance, multipliers can be 2X on the long side and -2X or -1.5X on the short side.
3

Timing

How often does

the performance target

reset?
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Performance Reset Period: Each ETF “resets” its performance target regularly at a defined point in time.
“Daily Reset” ETF: For example, a 2X long daily product will attempt to double (200%) the price change from the close of the prior day’s trading session to the close of that day's trading. Keep in mind, the price can go down, in which case the ETF moves 2X in that direction.
“Calendar Reset” ETF: This type of ETF introduced by Tradr ETFs offers a specified amount of leverage for a period other than a single day, including a calendar week, calendar month or calendar quarter. More on this later.

Daily Reset Leveraged ETFs for Daily Trading

Background

The first leveraged ETF was introduced in 2006. Since then, there have been over 200 leveraged and inverse ETFs in the market with over $100 billion in assets under management. Up until the launch of Tradr’s Calendar Reset Leveraged ETFs in 2024, all of these ETFs have had a Daily Reset.

Opportunities of “Dailies”

Dailies are well-designed for active traders, whether individuals or professionals managing portfolios, who can continually watch and move in and out of positions.
They can be an effective way to amplify returns on a very short-term basis, namely a day at a time.

QUICK POINTS

  • Introduced in 2006
  • $100B+ assets
  • Dailies reset
every day

3 Challenges of Holding Dailies Beyond a Day

1

Volatility Drag

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Every day the Daily ETF resets its performance target at a new level. High day-to-day price volatility of the reference security, especially up and down, affects your investment results.
Imagine you are tracking a security that rises 6% one day (from $100 to $106) and then drops 4% (from $106 to $101.76) the next. You’re still up on the trade, which is good. However, if you are using a 2X daily leverage ETF, that negative return has a disproportionately larger negative effect compared with a positive return of the same magnitude.
This phenomenon is called “volatility drag” and is more pronounced the longer the ETF is held. Professor William Trainor from East Tennessee University analyzed 20,000 simulations based on an underlying index that rises between 8-12% over a year and found that, on average, a 2x daily leveraged fund returned just 3.1% and a 3x daily ETF returned -17.7%.
2

Compounding

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When a Daily is held for a while, it becomes increasingly difficult to account for the effects of compounding and to hit the targeted leverage multiple (e.g., 2X) over a longer holding period.
3

Rebalancing

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Dailies require frequent monitoring of your position and, if you want to use them as intended, would necessitate frequent trading, which potentially generates additional trading costs.
The bottom line is uncertainty. Volatility drag and the compounding effect create a “Leverage Trap” that complicates the investor’s ability to achieve the desired leverage, and literally can eat away at returns.

ENTER CALENDAR RESETS

In 2024, Tradr ETFs evolved the Leveraged & Inverse ETF space by launching the world’s first Calendar Reset Leverage ETFs.

They are a new ETF alternative for investors who seek leveraged returns and intend to stay in their positions for more than a day.
Now investors can better align their performance reset period with their investing time horizon. Performance reset periods are available for calendar weeks, calendar months and calendar quarters.
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What Makes Non-Daily Leveraged ETFs Different?

Investors have more control over the three levers of their leveraged trades.
The uncertainty due to daily price volatility and compounding can be reduced.
The burden of daily monitoring and frequent rebalancing is eased.
Investors can take a longer position to express their high conviction view.

QUICK POINTS

  • Control over
time horizon
  • Reduced
volatility drag
  • Less daily monitoring

Frequently Asked Questions

How are “calendar” weeks, months and quarters defined?
The Tradr Calendar Reset Leveraged ETFs provide a return based on the performance of the underlying reference security for one of the following specified reset periods:

 

  • Weekly: A full calendar week is defined as the close of trading on the last business day of one calendar week to the close of trading on the last business day of the following calendar week.
  • Monthly: A full calendar month is defined as the close of trading on the last business day of one calendar month to the close of trading on the last business day of the following calendar month.
  • Quarterly: A full calendar quarter is defined as the close of trading on the last business day of one calendar quarter to the close of trading on the last business day of the following calendar quarter.
When can I buy and sell shares of the ETFs?
A key advantage of all Exchange Traded Funds, including Tradr ETFs, is that you can purchase and sell ETF shares during the U.S. market trading session, similar to stocks.
How can I achieve the stated leverage of the ETF?
Let’s use a Weekly reset period as an example. The only way to precisely achieve the intended leverage is to buy the ETF as near to the market close on a Friday and sell it as near to the market close on the following Friday. Of course, you can hold the ETF for longer than a week but remember that it will only deliver the intended performance for one calendar week exactly and then the performance period will be reset.
What happens to my performance if I don’t buy shares at the start of the calendar period?
If you purchase shares at a time other than the close of the last business day of a calendar week, month or quarter, you will generally receive more, or less, than the intended leverage (such as 200% for a 2X long fund or -200% for a 2X short fund) exposure to the underlying reference security from that point until the end of the period.
What happens if I hold shares longer than the specified reset period?
Investors who invest for periods longer than the period specified by the fund (whether daily or for a full calendar week, month or quarter) should not expect to achieve the intended leverage (e.g., 200%) of the performance of the underlying security. The return will be the compounded return over the holding period, which will very likely differ from 200% of the return of the underlying security over that same time.
The impact of compounding can be more pronounced the longer the shareholder holds the ETF. Additionally, higher price volatility for the reference security will increase the impact of compounding on an investor’s returns. The Fund can lose money if the security’s performance is flat and, in some cases, even when the performance increases.
How do the Tradr ETFs provide leveraged returns?
Tradr ETFs are actively managed funds that use total return swaps to seek the leveraged performance of the underlying security. They are rebalanced daily, weekly, monthly or quarterly, based on their stated reset period, to maintain their long or short exposure and to pursue its performance target. There can be no assurance that the Funds will achieve their objectives.

 

The funds enter into one or more swaps with major global financial institutions for a specified period ranging from a day to more than one year whereby the fund and the global financial institution will agree to exchange the return (or differentials in rates of return) earned or realized on the underlying security. The gross return to be exchanged or “swapped” between the parties is calculated with respect to a “notional amount,” the return on or change in value of a particular dollar amount representing the security. We attempt to consistently apply leverage to maintain the fund’s exposure to that security’s return. We expect to rebalance the fund’s holdings daily, weekly, monthly or quarterly, based on their stated reset period, in an attempt to maintain such exposure.

Calendar Resets from Tradr ETFs

Available for a variety of high profile ETFs
for broad exposure to:

SPY

Broad U.S.

stock market
SPYM SPYB

Invesco QQQ ETF

Leading tech and other
Nasdaq 100 companies
MQQQ QQQW

SOXX

U.S. semiconductor

industry
SOXM SOXW

Available for highly liquid large cap stocks:

NVDA

A powerhouse
semiconductor company for the AI, crypto and gaming industries
NVDW

TSLA

Leader in electric vehicles and
battery technology
TSLW
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Let’s Trade

If you use an online broker, you may be able to invest in Tradr ETFs through your account. Start by linking to your broker here.
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Important Risk Information

ETF shares are bought and sold at market price (not NAV) and are not individually redeemed from the ETF. There can be no guarantee that an active trading market for ETF shares will develop or be maintained, or that their listing will continue or remain unchanged. Buying or selling ETF shares on an exchange may require the payment of brokerage commissions and frequent trading may incur brokerage costs that detract significantly from investment returns.

There are risks involved with investing including the possible loss of principal. Diversification does not guarantee investment returns or eliminate the risk of loss. Past performance does not guarantee future results.

Investors should carefully consider the investment objectives, risks, charges and expenses of the fund before investing. To obtain a prospectus containing this and other important information, please click here to download a prospectus online. Read the fund’s prospectus carefully before you invest.

Distributed by ALPS Distributors, Inc, which is not affiliated with AXS Investments or its Tradr ETFs.

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