Published October 17, 2011
| 24/7 Wall St.
Leveraged ETFs and ETNs are not new to most investors. They are also not new in all cases when it comes to precious metals. You are likely familiar with the SPDR Gold Shares (NYSE: GLD) for gold, iShares Silver Trust (NYSE: SLV) for silver, and the ETFS Physical Platinum Shares (NYSE: PPLT) for platinum. There are also some leveraged metals exchange-traded products out there. Now there is a new round of leveraged exchange-traded products from VelocityShares for investors who want to really reach for exposure on any given days., but there are eight new exchange-traded notes which are leveraged with and against precious metals. These should all be self-explanatory but we will group them by metal rather than by leverage.
VelocityShares 3x Long Gold ETN (NYSE: UGLD) and VelocityShares 3x Inverse Gold ETN (NYSE: DGLD) allow traders to manage gold exposures using a 3x leveraged long and inverse positions linked to the S&P GSCI Gold Index.
VelocityShares 3x Long Silver ETN (NYSE: USLV) and VelocityShares 3x Inverse Silver (NYSE: DLSV) allow traders to manage silver exposures using a 3x leveraged long and inverse positions linked to the S&P GSCI Silver Index.
VelocityShares 2x Long Palladium ETN (NYSE: LPAL) and VelocityShares 2x Inverse Palladium ETN (NYSE: IPAL) allow traders to manage palladium exposures using 2x leveraged long and inverse positions linked to the S&P GSCI Palladium Index.
VelocityShares 2x Long Platinum ETN (NYSE: LPLT) and VelocityShares 2x Inverse Platinum ETN (NYSE: IPLT) allow traders to manage platinum exposures using 2x leveraged long and inverse positions linked to the S&P GSCI Platinum Index.
The name “VelocityShares” should imply that these move fast in any given direction. That is a given. If you see another day where gold or silvers ramps up 5% or more intraday on news, in theory you should see a 15% corresponding move in these new gold and silver ETNs.
There are many caveats and generalities when it comes down to ETF and ETN products that are leveraged like this. All are a bit different from each other. The first caveat is that just about all ETF and ETN products list “tracking error” as a risk. When it comes to leveraged index ETF or ETN products, tracking error is often the norm rather than the exception. Many of these leveraged exchange-traded products are tied to an index using commodities futures, options, and derivatives as well, so don’t expect that you can just ask for delivery of one of the metals if the trade is going your way or against you. The taxation issues in some instances can be different from simply buying and selling stocks for capital gains as well.
JON C. OGG