Microsoft Leveraged ETFs and Their Investment Risks

Microsoft's foray into the world of leveraged ETFs is a notable one. Leveraged ETFs are designed to provide a multiple of the daily return of the underlying index, but they can be highly volatile and come with significant investment risks.

Investors should be aware that these ETFs often use complex financial instruments and can be subject to significant losses. For example, if the underlying index falls by 5%, a 2x leveraged ETF would lose 10% of its value.

The risks associated with leveraged ETFs are not limited to market downturns. They can also be affected by fees, trading costs, and other expenses that can eat into their performance. This can result in a significant divergence between the ETF's actual returns and its intended multiples.

It's essential for investors to carefully consider these risks before investing in Microsoft's leveraged ETFs.

There are several Microsoft leveraged ETFs available to investors, offering a range of options to suit different investment strategies.

The ProShares UltraPro QQQ ETF (TQQQ) is a popular choice, with a 3x daily leveraged exposure to the Nasdaq-100 Index, which includes Microsoft as one of its constituents.

The Direxion Daily Small Cap Bull 3X Shares ETF (TNA) provides a 3x daily leveraged exposure to the Russell 2000 Index, which includes Microsoft among its holdings.

The ProShares UltraPro Short QQQ ETF (SQQQ) offers a -3x daily leveraged exposure to the Nasdaq-100 Index, providing a way for investors to profit from a decline in the index's value, including Microsoft's stock.

The VanEck Vectors Semiconductor ETF (SMH) focuses on the semiconductor industry, which is a key sector for Microsoft, and offers a way for investors to gain exposure to the company through a broader industry lens.

Microsoft Leveraged ETFs carry a level of risk due to their focus on high-growth stocks.

The ETF's performance is heavily influenced by the underlying stocks' performance, which can be volatile.

A key factor to consider is the ETF's tracking error, which can affect its ability to accurately track the underlying index.

This can result in the ETF's returns deviating from the expected returns, potentially impacting its overall performance.

Investors should be aware of the ETF's leverage ratio, which can amplify both gains and losses.

Let's take a closer look at the risk metrics associated with Leveraged Shares 3x Microsoft ETP Securities.

The volatility of this investment over the past year has been quite high, reaching 53.10% compared to the broader market.

One of the most important risk metrics to consider is the maximum drawdown, which measures the largest peak-to-trough decline in value. For this investment, the maximum drawdown over the past year was -33.22%.

A Sharpe Ratio of -0.13 over the past year indicates that this investment has not provided a significant return relative to its risk.

Here are some key risk metrics for Leveraged Shares 3x Microsoft ETP Securities:

Looking at the Pricing & Performance of a fund is crucial to understanding its overall risk and potential returns. The Net Expense Ratio, which includes management fees and other operating expenses, is 1.04% for MSFUNAV and MSFUMarket Close, and 1.06% for MSFDNAV and MSFDMarket Close.

Keep in mind that this expense ratio is lower than the Gross Expense Ratio of 1.08% due to an Operating Expense Limitation Agreement between the fund's adviser and the fund. This agreement has been contracted to last until September 1, 2025.

The 1-year performance for MSFUNAV and MSFUMarket Close is -6.76% and -6.43%, respectively. In contrast, MSFDNAV and MSFDMarket Close have a 1-year performance of -1.94% and -2.06%, respectively.

Here's a summary of the 1-year performance for each fund:

It's essential to note that short-term performance is not a reliable indicator of a fund's future performance. As the article mentions, fund performance can be subject to substantial short-term changes due to ongoing market volatility.