What is 'Ultra ETF'

A class of exchange-traded funds (ETF) that employs leverage in an effort to achieve double the return of a set benchmark. The first ultra ETFs were launched in 2006 and the class has grown to include different ETFs with underlying benchmarks ranging from broad market indexes, such as the S&P 500 and Russell 2000, to specific sectors, such as technology, healthcare and basic materials.

Explaining 'Ultra ETF'

According to the prospectuses for these funds, they may not achieve double the return of the benchmark during flat markets. Long-run returns may also diverge from the desired return; the ultra ETFs' only aim is to achieve twice the daily return, which they have done fairly accurately in the short time they can be analyzed.

Ultra ETFs can be beneficial to investors who are short on capital or allocation space within a diversified portfolio. For example, they can invest 5% of their portfolios into an ultra ETF and gain closer to 10% exposure due to the leveraged returns.

Increased daily volatility is both the biggest benefit and greatest danger of ultra ETFs. They are best suited to short-term investing strategies or quick trading to maximize a given bet in the market. The expense ratios also run much higher than for standard ETFs, as most charge 0.95% of the total assets.

Further Reading

Have leveraged and traditional ETFs impacted the volatility of real estate stock prices?
www.tandfonline.com [PDF]
… We show why the UltraShort ETF may deviate more from the benchmark over longer periods than the Ultra ETF. Next we investigate the performance … for leveraged ETFs. If N is 2, then the coefficient is -1; if N is -2, then the coefficient is -3 … inversely ETF. 17 Page 20. References …

Leveraged ETFs: A risky double that doesn't multiply by two
search.proquest.com [PDF]
… We show why the UltraShort ETF may deviate more from the benchmark over longer periods than the Ultra ETF. Next we investigate the performance … for leveraged ETFs. If N is 2, then the coefficient is -1; if N is -2, then the coefficient is -3 … inversely ETF. 17 Page 20. References …

Ultra-high-frequency lead–lag relationship and information arrival
www.tandfonline.com [PDF]
… We show why the UltraShort ETF may deviate more from the benchmark over longer periods than the Ultra ETF. Next we investigate the performance … for leveraged ETFs. If N is 2, then the coefficient is -1; if N is -2, then the coefficient is -3 … inversely ETF. 17 Page 20. References …

Duration, Ultra-High-Frequency Volatility and Value-at-Risk: Forecasting Financial Market Risk Using Intraday Information
en.cnki.com.cn [PDF]
… We show why the UltraShort ETF may deviate more from the benchmark over longer periods than the Ultra ETF. Next we investigate the performance … for leveraged ETFs. If N is 2, then the coefficient is -1; if N is -2, then the coefficient is -3 … inversely ETF. 17 Page 20. References …

Portfolio performance with inverse and leveraged ETFs.
search.ebscohost.com [PDF]
… We show why the UltraShort ETF may deviate more from the benchmark over longer periods than the Ultra ETF. Next we investigate the performance … for leveraged ETFs. If N is 2, then the coefficient is -1; if N is -2, then the coefficient is -3 … inversely ETF. 17 Page 20. References …

Shorting Leveraged ETF Pairs
jot.pm-research.com [PDF]
… We show why the UltraShort ETF may deviate more from the benchmark over longer periods than the Ultra ETF. Next we investigate the performance … for leveraged ETFs. If N is 2, then the coefficient is -1; if N is -2, then the coefficient is -3 … inversely ETF. 17 Page 20. References …

Impact of leveraged ETF trading on the market quality of component stocks
www.sciencedirect.com [PDF]
… We show why the UltraShort ETF may deviate more from the benchmark over longer periods than the Ultra ETF. Next we investigate the performance … for leveraged ETFs. If N is 2, then the coefficient is -1; if N is -2, then the coefficient is -3 … inversely ETF. 17 Page 20. References …

Ultra-High-Frequency Pairs Trading in Gold ETFs
papers.ssrn.com [PDF]
… We show why the UltraShort ETF may deviate more from the benchmark over longer periods than the Ultra ETF. Next we investigate the performance … for leveraged ETFs. If N is 2, then the coefficient is -1; if N is -2, then the coefficient is -3 … inversely ETF. 17 Page 20. References …

Stock Price Volatility of Banks and Other FinancialsEmanating from the Inception ofLeveraged, Inverse, and Traditional ETFs
jii.pm-research.com [PDF]
… We show why the UltraShort ETF may deviate more from the benchmark over longer periods than the Ultra ETF. Next we investigate the performance … for leveraged ETFs. If N is 2, then the coefficient is -1; if N is -2, then the coefficient is -3 … inversely ETF. 17 Page 20. References …