Leveraged & Inverse Funds
Funds targeting a multiple or the opposite of an index's daily return.
What is Leveraged & Inverse Funds?
A 2x fund seeks twice the index's return for one day; an inverse fund seeks the opposite. Because they reset daily, returns over longer periods can differ sharply from the stated multiple, especially in volatile markets. Regulators consider them generally unsuitable for retail buy-and-hold investors.
Leveraged & Inverse Funds: a worked example
An index rises 10% then falls 10% (net -1%). A 2x fund rises 20% then falls 20% (net -4%) - not -2%.
More terms in Equities, Funds & Alternatives
Shareholder Rights (Statutory vs. Cumulative Voting)
Voting, preemptive rights, dividends when declared, inspection, limited liability.
Types of Preferred Stock
Cumulative, convertible, callable, participating, and floating-rate preferred.
American Depositary Receipt (ADR)
A dollar-denominated receipt for foreign shares, traded in the US.
Rights vs. Warrants
Rights: short-term, below market. Warrants: long-term, above market.
Restricted & Control Stock (Rule 144)
Unregistered or insider-held stock with resale limits.
Employee Stock Options (ISO vs. NSO)
Incentive options get capital gains treatment; nonqualified options create income at exercise.
Technical Analysis
Forecasting prices from charts, trends, and trading volume.
Fundamental Analysis
Valuing a company from its financial statements, management, and industry.