Frequently Asked Questions about Geared Funds
Geared (leveraged and inverse) funds, which seek to provide a multiple (e.g., 2x or -2x) of the daily returns of an index or benchmark, have become valuable tools for knowledgeable investors seeking to implement a wide variety of investment strategies. With the nation’s largest lineup of alternative ETFs1 and as the leader in geared2 funds, ProShares is committed to providing information to help investors better understand how these funds work, so they can make informed investment decisions. Below are answers to frequently asked questions about geared funds:
- What are the investment objectives of geared funds?
- What are some common uses for geared funds?
Geared funds are valuable tools that can be used in a variety of ways by knowledgeable investors. Some examples include:
- Pursuing magnified returns (of course, losses are also magnified).
- Getting a target level of exposure using less cash.
- Helping to hedge against expected decline.
- Fine-tuning exposure (e.g., using an inverse fund to reduce exposure to a sector without selling holdings).
- What type of investor uses geared funds?
- How does a geared fund get its target level of exposure?
- Why is the performance of geared funds over time greater or less than the multiple of the index performance?
- Why do geared funds "reset" their exposure daily?
- Does the fact that these funds "reset" their exposure daily mean you shouldn't hold them for longer than a day?
- Are there strategies that can increase the chance of achieving returns close to the daily target over time?
- Why would an investor want to hold geared funds for longer periods?
- Where can I learn more about geared investing?