Investor Alert on the Dangers of Leveraged and Inverse ETFs

    FAIR Canada Calls upon Regulators to Take Action to Protect Investors

    TORONTO, May 14 /CNW/ - In a report released today entitled: "Heads You
Lose, Tails You Lose: The Strange Case of Leveraged ETFs" FAIR Canada
described the hazards of investing in leveraged and inverse ETFs for periods
longer than the daily performance that these funds promise. The 9 page report
describes the growth of this very popular product in both the U.S. and Canada
and how they pose threats to the health of investor portfolios.


    FAIR Canada Executive Director Ermanno Pascutto said: "The longer you
hold a leveraged or inverse Exchange Traded Fund (ETF), the greater the
likelihood that you will lose money, regardless of which direction you bet.
For the 12 months ending March 31, 2009, the S&P/TSX index of gold-mining
stocks was up 1%. The Horizons BetaPro Bear+ ETF lost 87%. The Bull+ fund lost
    Mr. Pascutto added: "These were not anomalies. Four of the nine pairs of
Horizons BetaPro's leveraged ETFs with at least a year-long track record lost
money in both their bull and bear versions for the 12 months ended March. At
least one member of virtually all of the other pairs suffered from significant
tracking errors."


    Leveraged and inverse ETFs are the most rapidly growing segment of the
market. 32 Canadian funds, offered only by Horizons BetaPro, have pulled in
$2.1 billion in investor dollars in the past 26 months and show up daily in
the lists of top performing and most actively traded stocks. In addition,
Canadian investors are purchasing U.S. leveraged ETF products. Offered by
Rydex, ProShares and Direxions, these funds have attracted a total of US $33.2
billion in assets in the past three years. Definitions of leveraged ETFs and a
table of their performance can be found in the appendices to this release.


    "Come on" advertising campaigns on both sides of the border encourage
investors to chase that popularity and top performance of a few funds.
Leveraged ETF funds actually deliver their promised daily performance, but
their marketing material omits performance data for longer periods.
Boilerplate risk disclosure does not come anywhere close to conveying the true
risks associated with speculating in these very powerful investment vehicles,
and the high probability of losing money if they are held longer term.


    (1) Immediately require all leveraged and inverse ETF products offered in
        Canada to file a new prospectus. The prospectus should have bold
        front page disclosure, in plain English, of the risks of holding
        these products for longer than a few days, particularly in volatile

    (2) Insist on prominent disclaimers on all leveraged/inverse ETF
        advertising, both print and broadcast, with an explicit warning: This
        product is not suitable for holding periods longer than a few days,
        and is not appropriate for virtually all retail portfolios.
        Disclosure should be provided on the relevant company websites.
        Marketing materials should include references to the actual
        performance of the bull and bear versions of the ETFs over a period
        of one year and since inception. Simplify tables to make tracking
        error, leverage and volatility risks much more transparent.

    (3) Warn registrants of the need to consider the suitability of these
        products for clients and to ensure that clients who trade the
        products understand the risks. Discount and execution-only brokers
        should communicate these risks to their clients.

    (4) Study and publish conclusions on the actual uses of leveraged and
        inverse ETFs before clearing new offerings for sale to retail
        investors. We should know to what extent retail investors are trading
        and how long they are holding these products. With the drumbeat of
        the new triple-leverage ETFs now heard in the U.S., such a study
        assumes much greater urgency.

    FAIR Canada Associate Director Steve Garmaise stated: "Despite recent
warnings in the financial press on both sides of the border, many investors
are unaware of the perils of holding leveraged or inverse ETFs for periods
longer than a few days. The biggest problem of leveraged ETFs is simple: over
time, they often don't do what investors expect them to do."
    Mr. Garmaise continued: "One key lesson of the recent financial collapse
is that markets do not self-regulate. Less sophisticated investors must be
protected from financial 'innovations' that pose excessive risks to their
savings while generating handsome returns for their sponsors. Just because
something can be sold doesn't mean that it should be sold - at least not
without appropriate safeguards and warnings."

    Appendix 1


    "Plain vanilla" Exchange Traded Funds are similar to index mutual funds
in that they passively duplicate an index. Unlike mutual funds that are priced
only at the close of market, ETFs trade like stocks. They have low fees and
other advantages: diversification, tax efficiency, liquidity, transparency,
and constant pricing information.
    Leveraged ETFs offer twice (or even three times) the daily return of
their underlying index. Inverse ETFs offer the opposite (often, a multiple of
the opposite) of the daily return.
    Advantages of Leveraged ETFs: Easy, risk-limited access to leverage.
Exposure to different markets. Useful tools for professional investors, for
hedging or gaining quick exposure to markets. Very popular.
    Disadvantages of Leveraged ETFs: Huge tracking errors over time.
Relatively high fees. Low transparency. Heavily influenced by both direction
and volatility of the underlying index. Risks of counter-party defaults.
Worsen end-of-day volatility of markets.

    Appendix 2

    Performance of Horizon BetaPro Leveraged Exchange Traded Funds
    Horizons BetaPro Fund Performance

                                      Percentage Return     Inception
    Fund name                1month  3month  6month   1year   Return (mm/yy)
    S&P/TSX 60 Bear + ETF     (14.4)   (6.9)   10.7    22.7     0.3   Jan 07
    S&P/TSX 60 Bull + ETF      14.3    (6.9)  (51.3)  (61.8)  (31.7)  Jan 07
    Index: S&P/TSX 60           6.9    (2.3)  (25.3)  (32.5)  (27.1)
    COMEX Gold Bullion Bear
     + ETF                     (7.8)  (15.5)  (23.2)  (23.5)  (24.7)  Jan 08
    COMEX Gold Bullion Bull
     + ETF                      6.1     4.2    (1.5)  (17.0)  (12.2)  Jan 08
    Index: Comex Gold Bullion  (3.6)    4.2     4.4    (1.8)    0.5
    DJ-AIG Agriculture Bear
     + ETF                     (8.2)    5.0    25.7    64.6   106.6   Mar 08
    DJ-AIG Agriculture Bull
     + ETF                      5.9   (17.1)  (44.2)  (67.3)  (73.6)  Mar 08
    Index: Dow Jones
     Agriculture                3.9    (6.4)  (19.3)  (35.2)  (43.6)
    NYMEX Crude Oil Bear
     + ETF                     (1.5)   16.3   285.1   201.8    95.2   Jan 08
    NYMEX Crude Oil Bull + ETF (8.8)  (52.1)  (94.0)  (94.8)  (89.8)  Jan 08
    Index: NYMEX Crude Oil     (2.7)  (23.8)  (68.6)  (69.0)  (65.3)
    NYMEX Natural Gas Bear
     + ETF                     29.8    84.9   198.1   389.6   146.6   Jan 08
    NYMEX Natural Gas Bull
     + ETF                    (27.2)  (60.9)  (83.8)  (93.4)  (85.6)  Jan 08
    Index: NYMEX Natural Gas  (13.9)  (34.3)  (54.3)  (69.0)  (61.9)
    S&P/TSX Energy Bear + ETF (18.3)  (22.3)  (23.7)  (25.4)  (16.2) June 07
    S&P/TSX Energy Bull + ETF  15.8    (6.4)  (65.5)  (75.4)  (57.3) June 07
    Index: TSX Energy stocks    8.3     0.0   (31.3)  (39.4)  (41.5)
    S&P/TSX Financials Bear
     + ETF                    (29.2)  (11.8)   28.4    15.7    23.7  June 07
    S&P/TSX Financials Bull
     + ETF                     34.2   (18.8)  (64.5)  (67.5)  (55.3) June 07
    Index: TSX Financial
     stocks                    15.7    (7.5)  (35.7)  (37.2)  (46.0)
    S&P/TSX Global Gold Bear
     + ETF                     36.3   (36.1)  (87.6)  (86.7)  (78.3) June 07
    S&P/TSX Global Gold Bull
     + ETF                    (34.7)    6.6    (0.1)  (46.4)  (17.1) June 07
    Index: S&P/TSX Gold
     stocks                   (17.9)    9.1    27.4     1.0    25.5
    S&P/TSX Global Mining
     Bear +                    (2.3)  (33.0)  (61.3)  (45.6)  (52.8)  Jan 08
    S&P/TSX Global Mining
     Bull +                    (2.3)   11.6   (41.8)  (74.4)  (62.3)  Jan 08
    Index: S&P/TSX Mining
     Stocks                    (0.8)   10.3    (8.5)  (34.9)  (22.3)

    All data as of March 31, 2009 except for one month performance figures as
of April 30, 2009. Source: Horizons BetaPro website, Performance Data ; FAIR
Canada calculations for indices since inception

For further information:

For further information: Ermanno Pascutto, Executive Director, FAIR
Canada, (416) 650-8492,; Steve Garmaise,
Associate Director, FAIR Canada, (416) 650-8491,

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