Safety of ETFs

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sad.machine_IHB

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Take an etf like UYG

I am thinking of investing in it long term with a lot of my savings. However, what if it moves under a dollar? Isn't there some type of rule about that and where it is taken off the NYSE? Could this ETF ever 'go under'?
 
your primary concern regarding a leveraged etf is how its performed relative to its benchmark. chart UYG relative to BAC, C, JPM, etc. and decide whether you think it's a good place to park a lot of your savings long term.
 
sad.machine said:
Take an etf like UYG

I am thinking of investing in it long term with a lot of my savings. However, what if it moves under a dollar? Isn't there some type of rule about that and where it is taken off the NYSE? Could this ETF ever 'go under'?
Click to expand...

I was in UYG for a week and made a nice profit off of a short term move up.

However, most leveraged ETF's are NOT for long term investing, they are typically for people who have a time frame of a few days or hours. Many of the leveraged ETF's also have a problem with tracking the underlying index they are based on, because they reset at the end of the day, or you get into issues of contango with some of the energy ETF's, which makes things even more confusing for someone with a long term horizon.

You need to do a tremendous amount of research if you're thinking about ANY of these leveraged ETFs. Some of them HAVE gone under. This is not a "set it and forget it," type of investment. There are far better vehicles to invest in for a "safe" play than a UYG, especially when you are talking about investing/risking your hard earned savings.
 
something else to keep in mind is deterioration caused by leveraged returns. if the mkt moves sideways for a prolonged period, you still lose return relative to the unlevered index. the trade doesn't go your way initially, you will get crushed very quickly and its harder to recover because your basis took a 2x hit. only when the trade moves in your favor quickly and immediately does a leveraged etf make sense. so if you need to have confidence in both direction and timing, i.e. not for long-term investing.
 
No, no, no!

You can't invest in a leveraged ETF long term. Decay will kill you.

They're for short term trades only. Basically a bet the market is going to head in one direction.
 
thanks for the info about decay. i forgot about that.

but my main question is about ETFs going under.

i understand that stocks can go under when the company goes out of business. but with index ETFs whose portfolio can change, can they ever go under?
 
ETF's go under all the time. Many of the exotic ones have been closed this year. I'm not sure what the time period is between being notified and actual closure.
 
Hopefully, you've read the articles linked above.

As one answer to your original question, you can look at a chart of FAZ. It was stellar when the financials collapsed, but starting in April of this year, it flat-lined. So the price fell from a peak of about $100/share to around $5/share. In response, Direxion did a 1 for 10 reverse stock split that took affect July 8. The next day each share was priced at roughly $50/share.

Since leveraged ETFs decay, I would expect them all to do this when the price reaches this range.

Is it possible UYG has peaked?
 
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