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WisdomTree welcomes on-going S&L ETP market analysis


WisdomTree Europe, a specialist in short and leverage (S&L) ETPs through the BOOST ETP product range, has welcomed the continued analysis of the S&L ETP market.    

A recent paper by Ivan Ivanov and Stephen Lenkey of the US Federal Reserve is the latest contribution to this discussion. WisdomTree Europe encourages the evaluation of the S&L ETF/ETP structure and mechanics, and believes that fact-based analysis will lead to a better understanding of their unique features from which investors may benefit.
WisdomTree Europe believes S&L ETPs are structurally sound, serve an important role in the market for tactical traders and investors, and have performed this role admirably during some of the most volatile and stressful periods in recent market history.   
ETPs are market access tools. Generally, ETPs do not invent trading or investment strategies, but rather give investor’s the tools to express their views. S&L ETPs have a total of USD58 billion of assets under management (AUM) globally, most of which is in extremely liquid underlying asset classes such as the S&P 500, FTSE MIB, Natural Gas, and Oil.  This amount represents approximately 2% of total global ETP AUM ((of just less than USD3 trillion), which would have been less than 5% of total global long-term AUM.  

Perhaps more importantly, S&L ETPs are a small fraction of assets and trading volumes compared to other derivative products such as margin trading, prime brokerage, CFDs/spread bets, futures, options, structured products, certificates, warrants, swaps, shorting, stock lending, and other products and services provided by the large global banking and asset management houses. Interestingly, the leverage factor employed by S&L ETPs is usually 2x or 3x the return of the index. This is an extremely low leverage compared to the leverage employed by some of the instruments listed above which can be up to 20x or more.

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