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I am taking over some of my IRA and 401K money and I want to move towards a more value based approach with an emphasis on dividends. One thing I have learned on this quest is that most options have the ability to use leverage and derivatives to generate return. I wanna make sure that my investments are not sitting with PMs who are too reliant on gambles to kick out a dividend so I do not get soaked.

My question to the community is how can I check if a fund/ETF is highly leverage at any given point in time? I am leaning more towards ETFs since I like being able to bail out at any point of the day. Ideally I want high dividend yield ETFs but if a firm is rolling the dice with options and other exotic stuff I would like to know. The charter says what is allowed but it doesn't say what is currently being done. Is there any way see through this veil?

Thanks in advance.

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  • Index funds generally don't leverage, for what that's worth.
    – keshlam
    Mar 2, 2016 at 15:49

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I can't speak about mutual funds, but ETFs are generally either leveraged or they're not. When they are leveraged, they advertise their target leverage ratio. If you want to know exactly minute-to-minute to the extent that leverage is actually a bit variable, I think that's not available. You can get the leverage on ETFs several ways:

  • Usually (if not always) the leveraged ETFs will have some clue in their name like "UltraShort" or "2x" that at least gives a clue if not the leverage amount. Then when you read their prospectus, you should be able to get the amount.
  • If you search online, you can find complete lists of all leveraged ETFs currently available.
  • Any decent online broker should provide this in their summary of the ETF under their "research tools."
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