I see that there is a type of investment called Daily Leverage Certificate which allows investor to buy a certificate tracking an index with multiple leverage factor. Meaning to say that if the index moves by 1% and the leverage is 5x, then the certificate's value moves by 5%. And the performance of the certificate is reset daily. Here is an example.

For such type of investments, the management fees and other fees are high, it can be 5% or so p.a. And due to this, will someday the value of the certificate drops close to 0? It's highly unlikely that an index can perform higher than 5% consistently. Also, this kind of certificate has Long and Short certificates too.

  • See if you can find a prospectus. It should detail the components involved in this security. – Bob Baerker Nov 30 '18 at 18:58

Dont forget that the index doen't need to increase >5% it had to move >1%, which is easily possible longterm. Longterm even gains above 5% pa are quite common at the big indexe fund (Dowjones, DAX etc.).

But don't invest to much into leverage certificates, if it goes down the leverage factor can be expensive especially when you go short (when you go short it gets expensiv if they go up just for clarification).

  • right, but the example I gave has both long and short certificates. Meaning that if it gains above 5% in long, then the short certificate will lose 25% if leverage is 5x, not including the management fee. so while the long certificate might be profitable, the other one is diving to the bottom of the pit. And vice versa. – rcs Dec 2 '18 at 12:41
  • i know those leverage products mostly from short investment, but this could be a bias from me through a friend who often invest like that. I am more the "buy and forget" type investor. – chris Dec 3 '18 at 12:49

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