A reader asked about the Horizons Betapro (leveraged) ETFs in a comment thread and I thought that it would make an interesting post as these ETFs have huge return and loss potential.
What are the Horizons Betapro ETFs?
They are ETF’s that double the exposure of the underlying index via built-in leveraging. Double the exposure means that the investor can potentially reap double the gains of the index OR double the loss.
Along with leveraging, their selection of ETFs can bet on both directions of a particular index. For example, HXU leverages the S&P/TSX index to the upside. HXD, on the other hand, leverages the downside. In other words, buying HXD is the same as shorting the market without needing margin in your account.
Obviously, these ETFs are meant for the investor with high risk tolerance.
Which Indexes are Covered?
There are a limited number of leveraged index ETFs offered by Horizons BetaPro ETFs. Among them include:
|S&P/TSX Capped Financials Bull/Bear||HFU/HFD||1.15%|
|S&P/TSX Capped Energy Bull/Bear||HEU/HED||1.15%|
|S&P/TSX Global Gold Bull/Bear||HGU/HGD||1.15%|
|S&P/TSX Global Mining Bull/Bear||HMU/HMD||1.15%|
|Gold Bullion Bull/Bear||HBU/HBD||1.15%|
|NYMEX Crude Oil Bull/Bear||HOU/HOD||1.15%|
|NYMEX Natural Gas Bull/Bear||HNU/HND||1.15%|
|DJ-AIG Agricultural Grains Bull/Bear||HAU/HAD||1.15%|
|US Dollar Bull/Bear||HDU/HDD||1.15%|
As the Horizons BetaPro ETFs are less than 2 years old (started at beginning of 2007), it’s difficult to get a real appreciation for their track record. However, since HXU started close to Feb 2007, XIU has gained a total of 17% and HXU 26%. It’s not double, but a significant increase in gains.
Taking a closer look:
- The big 10-12% market drop at the beginning of 2008 resulted in a >20% drop in HXU. From there the market recovered a bit.
- From the low in mid-March to the end of the chart, XIU (Canadian index) gained approximately 17%. HXU on the other hand gained about 30%.
HXD is the opposite of HXU where it appreciates when the markets go down. HXD may be useful for those who want to reduce volatility in their portfolio as it has double downside protection.
As mentioned earlier, these ETFs are not for the faint of heart as they are extremely volatile. However, as the markets have proven to keep going up over the long term, I think that the double exposure market index ETFs could be a winner for those who can stomach the price swings.
I wonder if HXU would be a lucrative long term pick for my Smith Manoeuvre portfolio?