Twelve Things You Need to Know About ETFs

By Ben Steverman - 2012-02-27T22:16:37Z

Illustration by Dennis Pacheco

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What's the proper way to use leveraged ETFs that magnify returns?

U.S. regulators have stopped approving new ETFs that use derivatives, including the types mentioned earlier that are used by commodity ETFs. The Securities and Exchange Commission has particularly criticized so-called leveraged funds, which use derivatives to double or even triple gains (or losses) from a particular index, and inverse funds, which allow investors to bet against an index. "We do not recommend them," says Sean Crawford of Barclays Wealth. Besides their riskiness, a big problem is that such funds are designed to work for daily traders in a way that hurts the returns of long-term holders.

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