Test 2. Boost ETP Short & Leveraged ETF / ETP Advisor Test

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This questionnaire/tutorial has been created by Boost ETP to assist advisors and investors in understanding the benefits and the risks of investing in Short and Leverage Exchange-Traded Products (ETPs). ETPs include Exchange Traded Funds, Exchange Traded Commodities and Exchange Traded Notes.

Please review the Boost ETP Tutorial on Short and Leveraged ETPs before you begin the text.

There are a 10 multiple choice questions within the text.

Answers are provided at the end of the test.

1. What does “daily rebalancing” allow for in a 3x leveraged ETP?

a) ETPs rebalance their leverage at the end of every index trading day, providing investors with a 3x or -3x daily returns
b) ETPs rebalance their leverage at the middle of every index trading day, providing investors with a 3x or -3x half-daily returns
c) ETPs rebalance their leverage at the end of every index trading day, providing investors with more than 3x or -3x daily returns
d) ETPs rebalance their dollar leverage at the start of every index trading day, providing investors with constant dollar leveraged returns

2. Which of the following is the most likely motivation behind buying a “Short FTSE” ETP?

a) A hedge fund manager believes the FTSE Index will rise
b) A hedge fund manager would like more exposure to UK Large Cap stocks
c) A hedge fund manager believes the FTSE Index will become more volatile
d) A hedge fund manager is using the Short ETP to cover the market risk of buying specific stocks

3. Short and Leveraged ETPs have been in existence since :

a) 2005
b) 2001
c) 1999
d) 2007

4. Trading: Which of the following could a 3x S&L ETP be used for:

a) Hedge an existing position with one simple trade
b) Invest a third of your capital for the same exposure as a delta one investment
c) Use tactically to profit from short term market moves
d) All of the above

5. Investing in Short and Leveraged ETPs is suitable for:

a) All investors
b) Those investors who simply understand leverage
c) Those investors who do not wish to magnify potential losses
d) Sophisticated and/or informed investors who understand leverage, daily rebalancing and compounded daily returns and are willing to magnify potential losses

6. If an investor buys £500 of a Boost 3x Leverage Daily ETP, how much exposure does the investor receive?

a) £500 + £1500 (£500 x 3) = £2,000 of exposure
b) £1,500 of exposure
c) £1,000 of exposure
d) £500 of exposure

7. If an investor buys £500 of a Boost 3x Short Daily ETP what investment is effectively made?

a) £1,500 of the index is borrowed and sold short. The £2,000 cash (£500 from the investor and £1,500 from the short sale of the index) is then invested at inter-bank cash rates.
b) £1,500 of the index is borrowed and sold short. The £1,500 cash (£500 from the investor and £1,000 from the short sale of the index) is then invested at inter-bank cash rates.
c) £1,000 of the index is borrowed and sold short. The £1,500 cash (£500 from the investor and £1,000 from the short sale of the index) is then invested at inter-bank cash rates.
d) £2,000 of the index is borrowed and sold short. The £2,000 cash (£500 from the investor and £1,500 from the short sale of the index) is then invested at inter-bank cash rates.

8. In what circumstance would a fund manager not use a Short and/or Leveraged ETP?

a) Long /Short Strategy – to take advantage of undervalued assets
b) Hedging – to hedge existing portfolios on a tactical basis
c) Tactical Asset Allocation - to take advantage of short term trading opportunities within a broader portfolio
d) Buy and Hold - to gain exposure to the underlying index for longer-term investment

9. An investor buys £100 of a Boost FTSE 100 3x Leverage Daily ETP, when the FTSE 100 Index is at 10,000. The FTSE 100 rises by 2% each day over a three day period. What return could the investor reasonably expect at the end of the third day?

a) A return less than the 3x cumulative return of the underlying index
b) A return greater than the 3x cumulative return of the underlying index
c) A return the same as the 3x the daily return of the underlying index
d) A return the same as the 3x cumulative return of the underlying index

10. An investor buys £100 of a Boost FTSE 100 3x Short Daily ETP, when the FTSE 100 Index is at 10,000. The FTSE 100 rises by 2% the first day, falls 2% the second day and rises again 2% the third day. What return could the investor reasonably expect at the end of the third day?

a) A return greater than the -3x cumulative return of the underlying index
b) A return less than the -3x cumulative return of the underlying index
c) A return the same as the -3x the daily return of the underlying index
d) A return the same as the -3x cumulative return of the underlying index

Answers

1. A 3x leveraged ETPs rebalance their leverage at the end of every index trading day, providing investors with a 3x or -3x daily returns.

2. D Common motives for using Short ETPs are to Short the market or to hedge away the market risk of specific long positions.

3. A Short and Leveraged ETPs have been in existence since 2005.

4. D All are possible uses of a short and leveraged ETP.

5. D Investing in short and leveraged ETPs is only suitable for sophisticated and / or informed investors.

6. B If an investor buys £500 of a Boost 3x Leverage Daily ETP, the investor receives £1,500 of exposure consisting £500 cash and £1,000 of borrowed funds (charged at the interbank lending rate).

7. A If an investor buys £500 of Boost 3x Short Daily ETP, £1,500 of the index is borrowed and sold short. The £2,000 cash (£500 from the investor and £1,500 from the short sale of the index) is invested at inter-bank cash rates.

8. D Short and leveraged ETPs are not suitable for long-term buy and hold investors.

9. B In an upward trending market, an investor can expect the compounded return to outperform 3x the underlying index.

10. A In a volatile or sideways trending market, an investor can expect the compounded return to underperform 3x the underlying index.

Disclaimer

This communication has been provided by Boost ETP LLP which is an appointed representative of Mirabella Financial Services LLP which is authorised and regulated by the Financial Conduct Authority.

The products discussed in this document are issued by Boost Issuer PLC (the “Issuer”) under a Prospectus approved by the Central Bank of Ireland as having been drawn up in accordance with the Directive 2003/71/EC. The Prospectus has been passported from Ireland into the United Kingdom and is available on the websites of the Central Bank of Ireland and the Issuer. Please read the Prospectus before you invest in any Exchange Traded Products (“ETPs”). Neither the Issuer nor Boost ETP LLP is acting for you in any way in relation to the investment to which this communication relates, or providing investment advice to you. The information is not an offer to buy or sell or solicitation of an offer to buy or sell any security or investment. You are advised to seek your own independent legal, investment and tax or other advice as you see fit.

The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. An investment in ETPs is dependent on the performance of the underlying index, less costs, but it is not expected to match that performance precisely. ETPs involve numerous risks including among others, general market risks relating to the relevant underlying index, credit risks on the provider of index swaps utilised in the ETP, exchange rate risks, interest rate risks, inflationary risks, liquidity risks and legal and regulatory risks.

ETPs offering daily leveraged or daily short exposures (“Leveraged ETPs”) are products which feature specific risks that prospective investors should understand before investing in them. Higher volatility of the underlying indices and holding periods longer than a day may have an adverse impact on the performance of Leveraged ETPs. As such, Leveraged ETPs are intended for financially sophisticated investors who wish to take a short term view on the underlying indices. As a consequence, Boost ETP LLP is not promoting or marketing Boost ETPs to Retail Clients. Investors should refer to the section entitled "Risk Factors" and “Economic Overview of the ETP Securities” in the Prospectus for further details of these and other risks associated with an investment in Leveraged ETPs and consult their financial advisors as needed.

This marketing information is derived from information generally available to the public from sources believed to be reliable although Boost ETP LLP does not warrant the accuracy or completeness of such information. All registered trademarks referred to herein have been licensed for use. None of the products discussed above are sponsored, endorsed, sold or promoted by any registered trademark owner and such owners make no representation or warranty regarding the advisability on dealing in any of the ETPs.

Copyright © 2013 Boost ETP LLP. All rights reserved



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs , Economy , Investing Ideas

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