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. ETF stands for:
a) Exact Trading Fund
b) Exchange Traded Fund
c) Extreme Traded Fund
d) Exchange Trading Finance
2. Which of the following best describes how the returns of a short and a leveraged ETP will perform if the underlying index delivers a +2% return on one day?
a) The 3x short ETP will fall by 6% and the 3x leveraged ETP will rise by 6%
b) The 3x short ETP will rise by 6% and the 3x leveraged ETP will fall by 6%
c) The 3x short ETP will fall by 2% and the 3x leveraged ETP will rise by 2%
d) The 3x short ETP will rise by 2% and the 3x leveraged ETP will fall by 2%
3. Compounding: The returns of daily leveraged ETPs will be affected by compounding over what period?
a) Longer than one day
b) Longer than 3 days
c) Longer than a week
d) Longer than a month
4. Compounding: In an upward trending market, what would the likely effect of compounding be on returns?
a) Provide a negative effect on the performance of the ETP
b) Provide a positive effect on the performance of the ETP
c) Have no effect on the performance of the ETP
d) None of the above
5. Short selling is where:
a) An investor purchases shares believing their price will rise in the future
b) An investor sells stock that they do not own, expecting that the price will fall in the future and to buy back at a lower price
c) An investor purchases shares believing their price will fall in the future
d) An investor sells stock that they do not own, expecting that the price will rise in the future and to buy back at a higher price
6. Compounding of returns on daily leveraged ETPs products occurs:
7. If an investor wishes to achieve £7,500 of exposure by investing in a Boost 3x Leverage Daily ETP how much would the investor need to invest?
8. Some ETPs have an inbuilt mechanism that is designed to prevent the ETP from falling to $0 in one day. For Boost FTSE 100 3x Leverage Daily ETP (3UKL ) this would be triggered by a intra-day FTSE 100 fall of:
a) 15% (45% including leverage)
b) 10% (30% including leverage)
c) 25% (75% including leverage)
d) 20% (60% including leverage)
9. Which of the following investor types would be suitable to buy a short and leveraged ETP?
a) A traditional buy and hold investor who is not concerned about short term price fluctuations
b) An investor who does not actively follow their trading positions on a regular basis
c) A sophisticated investor who understand the effects of leverage and compounding
d) An investor who is seeking to protect his initial investment
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 falls 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 inverse return of the underlying index
b) A return the same as the 3x the daily inverse return of the underlying index
c) A return greater than the 3x cumulative inverse return of the underlying index
d) A return the same as the 3x cumulative inverse return of the underlying index
1. B ETF stands for Exchange Traded Fund.
2. A The 3x short ETP will fall by 6% and the 3x leveraged ETP will rise by 6%.
3. A Compounding will affect returns over a period of longer than one day.
4. B A trending market, up or down, will have a positive effect on the performance of an ETP.
5. B Short selling is where an investor sells stock that they do not own, expecting that the price will fall in the future so the investor can buy back at a lower price.
6. D Compounding of returns on ETPs products is performed daily.
7. C If an investor wishes to gain £7,500 of exposure they need to invest £7,500 / 3 = £2,500.
8. D Should the FTSE100 fall by 20% or more this would trigger an intra-day rebalancing.
9. C S&L ETPs are only suitable for sophisticated investors who monitor their positions on a regular, if not, daily basis.
10. C In a downward trending market, an investor can expect the compounded return to outperform 3x the inverse of the underlying index.
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.
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