Brocker.Org: ‘Market crack’: These risky new ETFs can quadruple your gains — or losses


In a blog post back in January, Arnuk questioned multiple aspects of the application to the Securities and Exchange Commission, primarily on whether the relatively unknown ForceShares was capable of running the two ETFs.

ForceShares officials could not be reached for comment.

The SEC approved a rule change that would allow the funds to be traded. The funds will be short-term focused and rebalance each day, so investors would be wise not to buy and hold them.

Arnuk said he understands the Trump administration’s moves to loosen regulations, but believes the SEC made a mistake in this case.

“I can’t imagine how they would read those disclosures and be OK with the product even if they were OK with the philosophy of giving crack,” he said.

“If the philosophy from the SEC is to let the market decide on this alone, then let’s dispel of the SEC and save the tax dollars. But let’s not have the SEC, pay for them, have them state what their mission is, and abandon it,” Arnuk added.

Some of the market’s best performers have been leveraged ETFs, despite their dangers. Over the past year, for instance, the Direxion Daily Semiconductor Bull 3x Shares, which pays triple the return of the semiconductor sector, is up 245 percent.

However, Arnuk believes the primary beneficiaries of these kinds of funds are high-speed traders, who crave the kind of volatility that leveraged products offer. He believes it’s not unreasonable to imagine funds in the future that offer five or 10 times leverage or more.