“The HBP 60 Bull+ ETF seeks daily investment results, BEFORE fees, expenses, distributions, brokerage commissions and other transaction costs, that endeavour to correspond to two times (200%) the daily performance of the S&P/TSX 60 Index®.”

“With respect to the HBP Bull+ ETF, under the Initial Forward Documents, the value of the purchase price payable thereunder will be reduced by an amount equal to 0.20% per annum of the notional amount of the forward price, calculated and applied daily in arrears. This amount effectively equates to a nominal annual fee of 0.20% with respect to the HBP Bull+ ETF.”

“The Portfolio Manager may invest in securities or financial instruments that are not included in the S&P/TSX 60 Index® or may weight certain stocks or industries differently than the S&P/TSX 60 Index® if the Portfolio Manager believes it is appropriate in view of the ETF’s investment objective, including money market instruments and other income producing instruments.”

“The Portfolio Manager may choose to avoid investment exposure to all of the equity securities or components comprising the S&P/TSX 60 Index®, or the ETF’s weighting of investment in such securities or industries may be
different from that of the S&P/TSX 60 Index®.”

“Each ETF will GENERALLY not use leverage in excess of 2.0 times its net asset value. If an ETF uses leverage in excess of 2.0 times its net asset value, it shall GENERALLY reduce its leverage to 2.0 times its net asset value within 10 business days.”

“Each ETF will pay the Manager an annual Management Fee equal to 1.15% of the net asset value of the Units of that ETF.”

“Leverage may involve the creation of a liability that does not entail any interest costs OR the creation of a liability that requires an ETF to pay interest, which will decrease the ETF’s total return to its Unitholders.”

“So while in this example the ETF has succeeded in meeting its 200% daily investment objective, it DOES NOT and SHOULD NOT BE EXPECTED to return 200% of the index over ANY PERIOD OF TIME OTHER THAN DAILY.”

Uh…I’ll pass on this one. I’d use a lot of caution here (as you mentioned). The potential savings of the 6% borrowing cost for a similar strategy does not come free, as you have very high fees, possible loss of dividend income, possible pass-through of interest costs, way too much latitude given (in my opinion) to pursue strategies outside the main objectives, and a general lack of transparency about how they intend to structure the derivatives. Not to mention the introduction of a lot of additional miscellaneous risks that each have low probability, but are nonetheless embedded costs…

BetaPro ETFs are great tools for traders, but the math in my post proves that they don’t necessary hedge the market.

Here’s another example for BetaPro Bear: $100 in index surges 20% in one day, and plunges 20% the next. The new balance is $96 ($100 x 120% x 80%). One would think that BetaPro Bear should be up 8%, since this ETF amplifies the inverse direction twofold. Let’s find out. The ETF would go DOWN 40% in day one and UP 40% in day 2. The new balance is $84 ($100 x 60% x 140%). BetaPro Bear amplifies the pain fourfold.

According to Bhavna Hinduja, fund analyst with Morningstar Canada:

Note that the objective of these funds is to produce returns corresponding to the daily and not the monthly or annual performance of the underlying index. As a result, their month-end or annual returns will not necessarily be the multiplier times index returns.