Q: What is your opinion of global x’s leveraged index etf’s GLOBAL X ENHANCED MSCI EAFE INDEX ETF and GLOBAL X ENHANCED S&P 500 INDEX ETF?
It is likely that they would outperform their non levered indexes over time? Would you consider them buyable currently, with the small AUM’s. Is there a levered corporate class etf that does not pay distributions?
It is likely that they would outperform their non levered indexes over time? Would you consider them buyable currently, with the small AUM’s. Is there a levered corporate class etf that does not pay distributions?
5i Research Answer:
If the markets continue their upward trend, it is possible that the levered ETFs could outperform their non-levered counterparts. EAFL currently trades at a 0.23% discount to its NAV while USSL trades a 0.48% premium to its NAV. Both ETFs have fairly high MERs (USSL at 1.35% and EAFL at a 1.49% MER). The main issue with even moderately levered ETFs is that drawdowns work against them, causing compounding decay over long periods of time.
Given the very small AUM of both ETFs, the premium to NAV for USSL, high MERs, and long-term compounding decay, we would be fairly cautious on these types of names for long-term holdings.