Profiting from Volatility using Leveraged and Inverse ETFs

Global financial markets have been erratic throughout 2019. Market cycles are seen to be sharper and shorter as of late moving on news flow and expectations. With volatility back and investors bracing for a bumpier ride ahead, instruments like leveraged and inverse exchange-traded funds (L&I ETFs) can be used to capitalise on such market conditions.

With the fresh listing of the country’s first L&I ETF on Bursa, local investors now have access to a popular strategy that was until recently only available in more developed markets like the US, Hong Kong or South Korea.

Last November saw the simultaneous listing of 4 L&I ETFs by Affin Hwang AM that would provide investors the opportunity to profit from both bearish and bullish market trends.

The 4 ETFs are the TradePlus NYSE® FANG+™ Daily (2x) Leveraged Tracker, TradePlus NYSE® FANG+™ Daily (-1x) Inverse Tracker, TradePlus HSCEI Daily (2x) Leveraged Tracker, and TradePlus HSCEI Daily (-1x) Inverse Tracker.

Benchmarked against the Hang Seng China Enterprises Index and NYSE® FANG+™ Index respectively, the ETFs will provide investors the option to either gain a (2x) leverage or hold an inverse (-1x) position on the 2 indices.

It would provide investors with the opportunity to either double their investment returns through a Leveraged ETF in up markets, as well as the opportunity to gain returns/hedge against losses by shorting the market through an Inverse ETF in down markets.
All these without the common hassle that comes with derivative trading through warrants/futures such as margining or expiry.

Here’s a breakdown of how investors can employ L&I ETFs as part of their portfolio strategy to potentially profit no matter which direction the market goes.

Tactical Exposure – Trade on Market News/Noise

2019 has been a trading market throughout the year as volatility surges whether stemming from trade tensions, recessionary fears or geopolitical tensions (e.g. Hong Kong riots, Brexit). The smartest strategy is to buckle-up, stay disciplined and invest consistently to ride the market peaks and troughs.

But, for investors looking to unleash their inner-trader and want some tactical exposure, then L&I ETFs are the ammunition to do so. L&I ETFs should be primarily viewed as daily trading tools for investors to express their short-term market views and potentially profit from intraday swings of the index.

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