Test 4: Boost ETP Short & Leveraged ETF / ETP Advisor Test

By
A A A

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. Leverage: What is the leverage factor of a FTSE 100 3x Leverage Daily ETP?

a) 2x
b) 1x
c) 3x
d) 4x

2. Compounding: In a sideways 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

3. Daily rebalancing: What period of rebalancing allows an investor to buy an S&L ETP on any day and still achieve the stated leverage

a) Daily
b) Weekly
c) Monthly
d) Yearly

4. Investing in 3x Short and Leveraged ETPs can lose a maximum of:

a) The full market value of their initial investment
b) 3x the full market value of their initial investment
c) Only one third of the full market value of their initial investment
d) Unlimited amounts

5. Which of the following is the most likely outcome for the Boost FTSE 100 3x Leverage Daily ETP if the FTSE falls by 2% in one day

a) The Boost FTSE 100 3x Leverage Daily ETP is likely to post a 3% gain for the day
b) The Boost FTSE 100 3x Leverage Daily ETP is likely to post a 6% gain for the day
c) The Boost FTSE 100 3x Leverage Daily ETP is likely to post a 6% loss for the day
d) The Boost FTSE 100 3x Leverage Daily ETP is likely to post a 3% loss for the day

6. If an investor buys £100 of a Boost 3x Short Daily ETP what investment is effectively made?

a) £300 of the index is borrowed and sold short. The £400 cash (£100 from the investor and £300 from the short sale of the index) is then invested at inter-bank cash rates.
b) £300 of the index is borrowed and sold short. The £300 cash (£100 from the investor and £200 from the short sale of the index) is then invested at inter-bank cash rates.
c) £200 of the index is borrowed and sold short. The £300 cash (£100 from the investor and £200 from the short sale of the index) is then invested at inter-bank cash rates.
d) £400 of the index is borrowed and sold short. The £400 cash (£100 from the investor and £300 from the short sale of the index) is then invested at inter-bank cash rates.

7. Boost Short and Leveraged Daily ETPs provide a constant multiple leverage because:

a) They are re-balanced hourly
b) The open-ended ETP structure allows for investors to buy and sell the ETP on any day and still receive the stated leverage multiple
c) The closed ETP structure allows for investors to buy and sell the ETP on any day and still receive the stated leverage multiple
d) They are re-balanced weekly

8. Short and Leverage ETPs can:

a) Multiply daily returns either positive or negative (excluding fees and adjustments)
b) Provide delta 1 returns (excluding fees and adjustments)
c) Provide risk free returns
d) Lock in returns through daily re-balancing

9. Rebalancing Calculation: An investor buys £100 of a Boost FTSE 100 3x Leverage Daily ETP, when the FTSE 100 Index is at 10,000. At the end of the first day trading the FTSE 100 Index stands at 10,100 (excluding fees and adjustments).

a) Borrowed funds will be £102 after rebalancing at the end of day 1
b) Borrowed funds will be £197 after rebalancing at the end of day 1
c) Borrowed funds will be £206 after rebalancing at the end of day 1
d) Borrowed funds will be £306 after rebalancing at the end of day 1

10. Compounding Calculation: An investor buys £100 of a Boost FTSE 100 3xLeverage Daily ETP, when the FTSE 100 Index is at 10,000. At the end of the first day trading the FTSE 100 Index rises to 11,000 and then drops back by 10% on day 2. Calculate the overall return to the investor (excluding fees and adjustments).

a) Investor return of -3.00%
b) Investor return of 0.00%
c) Investor return of +1.00%
d) Investor return of -9.00%

Answers

1. C The leverage factor would be 3x.

2. A A volatile or sideways trending market, will have a negative effect on the performance of an ETP.

3. A To achieve the stated leverage of a daily ETP, daily rebalancing is required.

4. A Investing in 3x Short and Leveraged ETPs can only lose the full market value of their initial investment.

5. C If the FTSE 100 posts a 2% loss for the day the Boost FTSE 100 3x Leverage Daily ETP is likely to post a 6% loss for the day.

6. A If an investor buys £100 of Boost 3x Short Daily ETP, £300 of the index is borrowed and sold short. The £400 cash (£100 from the investor and £300 from the short sale of the index) is invested at inter-bank cash rates.

7. B Boost Short and Leverage Daily ETPs provide constant leverage because the open-ended structure allows for investors to buy and sell the ETP on any day and still receive the stated leverage multiple.

8. A Boost Short and Leverage ETPs can multiply daily returns either positive or negative.

9. C £100 investment gives £300 of exposure. After the index rises by 1%, the price of the ETP will be £103. To obtain 3x exposure after rebalancing, borrowed funds of £206 will be required.

10. D 100 x 1.30 = 130 x 0.70 = 91: (91 / 100) - 1 = -9.00 %.

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

Referenced Stocks:

Boost

Boost

More from Boost:

Related Videos

Stocks

Referenced

Most Active by Volume

48,099,947
  • $16.09 ▲ 0.50%
40,277,806
  • $102.50 ▲ 0.24%
40,236,499
  • $19.57 ▲ 2.35%
31,092,510
  • $49.75 ▲ 0.65%
30,795,218
  • $34.92 ▲ 0.78%
29,910,855
  • $3.63 ▲ 0.83%
24,019,154
  • $13.06 ▼ 0.38%
23,753,906
  • $74.82 ▲ 1.31%
As of 8/29/2014, 04:04 PM

Find a Credit Card

Select a credit card product by:
Select an offer:
Search
Data Provided by BankRate.com