Recovery of Leveraged ETF Losses During 2020 Market Crash

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The securities attorneys at Morgan & Morgan’s Business Trial Group are investigating losses that leveraged investment products have experienced recently during the 2020 market crash.

Leveraged products – more specifically leveraged exchange-traded funds or exchange-traded notes – allow investors to gain greater exposure to the market without increasing their capital investment. By doing so, these products amplify the potential profit and loss for an investor, which can also present more risks. For this reason, leveraged ETFs are not usually suitable for the average investor.

A traditional ETF tracks the securities in the underlying index’s performance on a 1:1 ratio. This means that if the underlying index increases in value by 1 percent, then the traditional ETF also should achieve a 1 percent return. The same is true if the underlying index decreases in value by 1 percent, the ETF’s would also lose 1 percent.

A leveraged ETF, however, uses debt and derivatives to multiply returns on the underlying index at 2:1 or 3:1 ratios. This means that when the underlying index increases in value by 1 percent, the leveraged ETF would increase in value by 2 or 3 percent – and vice versa. If the underlying index decreased by 1 percent in value, the leveraged ETF’s return would then decrease by 2 to 3 percent or more. Because leveraged ETFs rebalance their portfolios daily, losses can be further aggravated in a down or volatile market.

If you have experienced substantial losses in a leveraged ETF, our experienced securities attorneys are here to help.

Morgan and Morgan’s securities attorneys regularly fight for justice against brokerage firms, investment advisory firms, and banks. Our attorneys help investors recover their monetary losses on a contingency basis. This means we are only paid if we successfully recover money for you. The firm has helped investors recover tens of millions of dollars of investment losses.