analyst Todd Rosenbluth.
On Tuesday, the Bank of Montreal will launch the Max SPX 500 4x leveraged ETNs, which follows the total return of the S&P 500 four times. These notes will be traded under the "XXXX" label. According to the CFRA analyst Todd Rosenbluth, it will be the most highly leveraged exchange traded product in the United States.
Bank of Montreal's launch of Max SPX 500 4x leveraged ETNs, which is the highest leveraged exchange traded product in the U.S., has given regular investors the chance to make an amplified bet based on the direction and performance of the stock market. The notes, which trade under the ticker "XXXX", are set to begin on Tuesday. Retail investors and asset management firms have been increasingly shifting their attention towards more volatile products like single-stock ETFs, zero-day options, and bitcoin ETFs. This has consequently seen an influx of interest towards higher leveraged funds such as the Direxion Daily Semiconductor Bull 3x Shares (SOXL) ETF. According to Aniket Ullal, the head of ETF and data analytics at CFRA, "the assets and the volumes tend to be more concentrated in the highest leveraged products and also the most volatile sectors." With this in mind, the question is, will regular investors want to make this amplified bet, and should they in light of the risks involved with such a fast-paced strategy?
The XXXX notes are intended for short-term trading, since the leverage is reset daily and the return on the label may not be achieved through a long-term holding. BMO said in the prospectus that these notes carry more risk than securities with intermediate- or long-term investment objectives and are not suitable for those following a 'buy and hold' strategy. Exchange traded notes (ETNs) can be distinguished from the more popular exchange traded funds (ETFs) by the fact that ETFs have physical holdings of securities which are marked to the market on a daily basis, whereas ETNs track an index and promise a certain return. The XXXX ETN is an unsecured liability of BMO that is set to mature in 2043 and carries a high 0.95% annual investor fee. Furthermore, there may be hidden costs associated with a daily financing charge or an early redemption fee. Despite the risks posed by the XXXX ETN, some international markets have even higher risk-return products. In 2017, the Securities and Exchange Commission approved two 4x leveraged products from a company called ForceShares, but they were quickly put on hold and appear to have never launched. In any case, the SEC issued a statement in August cautioning that leveraged and inverse products should not be used as long-term investments.
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