Leveraged ETFs: An Endangered Species? – ProShares UltraShort 20+ Year Trea (ETF) (TBT), ProShares UltraShort S&P500 (ETF) (SDS)

In this long bull market, players on both sides of the market have sought high-reward ways to play price swings. Both the bullish ProShares Ultra S&P500 (ETF) (NYSEARCA:SSO) and the bearish ProShares UltraShort S&P500 (ETF) (NYSEARCA:SDS) have more than $1 billion in assets.

ProShares has done a good job of providing sector-specific leveraged ETFs that allow targeted exposure to a particular industry. Many of its funds have substantial amounts of assets, with the ensuing liquidity creating a positive network effect that encourages more investors to choose ProShares over rival ETF providers.

By contrast, Direxion started out with the promise of getting even more leverage than ProShares, with its 3x funds offering triple leverage. It, too, has successfully found areas of particular interest to investors, with its best-known funds arguably being Direxion Daily Financial Bull 3X Shares (NYSEARCA:FAS) and Direxion Daily Financial Bear 3X Shares (NYSEARCA:FAZ) . With the nearly straight-up move in financials over the past year, the Direxion bullish financial ETF has produced a 78% return since this time in 2012, far outpacing the 25% return of the unleveraged SPDR financial ETF.

Leveraged ETFs aren’t going anywhere
I’ve criticized leveraged ETFs for years for the way they have slowly but surely sapped capital away from investors on both sides of their respective markets. But fund providers have been better about highlighting the fact that these vehicles are made for short-term speculation, rather than long-term investment. Unless you’re prepared to handle the immense volatility these funds promise, you’ll be better off avoiding them — but with millions of investors choosing to keep them in their portfolios, leveraged ETFs are far from endangered.

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The article Leveraged ETFs: An Endangered Species? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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