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Why I’d steer clear of leveraged ETFs

Leveraged exchange traded funds (ETFs) or exchange traded products (ETPs) may sound like the preserve of traders, but their presence among the private investor community is ticking up. Strikingly, the number of people who own a leveraged ETF via AJ Bell has increased by 70 per cent since February, with 1,700 customers now owning at least one out of the 163 available on this platform.

Hargreaves Lansdown, meanwhile, has closer to 10,000 customers in leveraged ETFs with WisdomTree FTSE 100 3x Daily Leveraged (3UKL) the most popular, a ranking the product also has on Hargreaves’ rival, interactive investor. 

It’s easy to see why people are drawn to leveraged ETFs. As markets have broadly been strong this year, why not jack up returns by building in leverage? Well perhaps because these products might not behave in the way you would expect. 

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