BMO has launched the first quadruple leveraged ETN fund that tracks the S&P 500.
The fund will trade under the ticker symbol "XXXX" and seeks to generate four time the S&P 500's return on a daily basis.
The launch come as bullishness rise among investors and Wall Street predicts more gains to come in 2024.
BMO launched the MAX S&P 500 4X Leveraged ETN fund on Tuesday, a first of its kind fund that seeks to generate 4x the daily return of the S&P 500. The fund eclipses the 3x leveraged stock market funds that are popular with short-term traders.
The launch of the fund comes at a time when bullishness among investors is on the rise and predictions for further gains in 2024 are proliferating across Wall Street. Most of the stock market's losses experienced during the 2022 bear market have been erased and the major stock market averages are less than 5% away from their all-time highs.
Meanwhile, bitcoin has soared more than 100% this year, yet another signal that suggests a return to the risk-on sentiment of the pandemic era.
Short-term traders that pile into these leveraged returns are typically looking for a quick return and trade in and out of them quickly, rather than holding them for the long-term.
"I suspect the [demand for leveraged products] will continue to grow as retail continues to adopt these… now you have retail traders able to trade from their phone anywhere they want, and these products help to cater that," Strategas Securities' ETF analyst Todd Sohn told ETF.com.
Holding these leveraged funds for the long-term can be highly risky, because while they can deliver outsized gains as the stock market moves up, small corrections in the stock market can generate huge losses.
This dynamic has been on full display over the past two years in the ProShares UltraPro QQQ 3x fund, which is a triple leveraged fund that tracks the Nasdaq 100. While the Nasdaq is down just 5% from its record high reached in late 2021, its 3x leveraged counterpart is still down 54% from its record high.
Importantly, the 4x leveraged S&P 500 fund is not an ETF, but is an ETN, or exchange traded note. The major difference is that ETNs carry credit risk and can shut down if the counterparty to the fund decides that they no longer want exposure to the fund.
That's exactly what happened in January 2018, when two popular short volatility ETFs imploded and wiped out billions of dollars in a matter of minutes.
The 4x leveraged fund trades under the symbol "XXXX" on the NYSE ARCA and has a management fee of 0.95%.
BMO did not respond to a request for comment from Business Insider.
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