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Does daily leverage certificate value decrease over time?

Personal Finance & Money Asked by rcs on February 3, 2021

I see that there is a type of investment called Daily Leverage Certificate which allows investor to buy a certificate tracking an index with multiple leverage factor. Meaning to say that if the index moves by 1% and the leverage is 5x, then the certificate’s value moves by 5%. And the performance of the certificate is reset daily. Here is an example.

For such type of investments, the management fees and other fees are high, it can be 5% or so p.a. And due to this, will someday the value of the certificate drops close to 0? It’s highly unlikely that an index can perform higher than 5% consistently. Also, this kind of certificate has Long and Short certificates too.

2 Answers

Dont forget that the index doen't need to increase >5% it had to move >1%, which is easily possible longterm. Longterm even gains above 5% pa are quite common at the big indexe fund (Dowjones, DAX etc.).

But don't invest to much into leverage certificates, if it goes down the leverage factor can be expensive especially when you go short (when you go short it gets expensiv if they go up just for clarification).

Answered by chris on February 3, 2021

DLCs provide you exposure to a fixed leverage of three to seven times the every day performance of the fundamental index. Daily Leveraged Certificates or DLCs are a type of structured financial tools offered by banks and traded on the securities market.

Answered by AnthonyConstantinou on February 3, 2021

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