The Securities and Exchange Commission is putting a stopper in new leveraged funds, for now. The agency on Tuesday sent warning letters to nine issuers — including Direxion, GraniteShares and ProShares — halting reviews of leveraged ETFs that provide more than 2x exposure to their underlying securities. In stopping reviews and asking issuers to either revise their strategies or withdraw their applications, the SEC, which has been on a deregulatory streak since the beginning of the second Trump administrat ...

Group 1 - The article discusses leveraged funds, specifically focusing on daily-resetting leveraged funds, which include classic 2x and 3x bull/bear ETFs [1] - The author has extensive experience writing about leveraged funds and is recognized as a top expert on investment platforms [1] Group 2 - There is a disclosure regarding a beneficial long position in QQQM shares, indicating the author's personal investment interests [2] - The article emphasizes that past performance does not guarantee future results and that no specific investment advice is provided [3]

Core Viewpoint - The article compares two high-yielding mortgage REITs, AGNC Investment and Starwood Property Trust, highlighting the differences in their investment strategies and risk profiles, with Starwood being presented as a more stable option for income investors. Group 1: AGNC Investment - AGNC Investment offers a high dividend yield of over 14%, significantly higher than the S&P 500's 1.2% yield [1] - The REIT primarily invests in Agency residential mortgage-backed securities (MBS), which are low-risk but also yield lower returns [3] - AGNC uses leverage to enhance returns, achieving a return on equity of around 17% in the third quarter, aligning with its cost of capital [4] - The REIT has a history of dividend cuts, reducing its payment from $0.22 per share in 2014 to $0.12 per share currently, with the last cut occurring in 2020 [6] Group 2: Starwood Property Trust - Starwood Property Trust has a diversified portfolio, with 53% in commercial real estate loans, 9% in residential loans, and 10% in infrastructure-backed loans, providing stable interest income [7] - The REIT also invests directly in properties, generating stable and steadily rising rental income [9] - Starwood's recent acquisition of Fundamental Income Properties for $2.2 billion enhances its diversification and is expected to provide stable cash flow with a 17-year average lease term and a 2.2% annual lease escalation rate [10] - Starwood has maintained a stable dividend rate for over a decade without any reductions, making it a reliable income source [11] Group 3: Investment Strategy Comparison - AGNC's focused investment strategy allows for high returns but carries more risk, as evidenced by its declining dividend history [13] - In contrast, Starwood's diversified investment strategy reduces risk and provides flexibility to adapt to market conditions, allowing it to capitalize on various investment opportunities [12]

Core Insights - The U.S. Securities and Exchange Commission (SEC) is uncertain about the approval of numerous recent filings by asset managers for highly leveraged ETFs, particularly those seeking to offer 3x and 5x leveraged exposure [1][2] - The SEC's ability to review these filings is limited due to the ongoing government shutdown, which has resulted in reduced staffing [3][4] ETF Filings and Regulations - Volatility Shares has filed to launch 27 highly leveraged ETFs, including the first proposed 5x ETF for the U.S. market, raising concerns about compliance with the Derivatives Rule, which generally limits leverage to 2x [2][3] - The SEC has previously only approved single-stock leveraged ETFs with a maximum leverage of 2x, making the proposed 5x ETF a significant deviation [3] Market Impact and Investor Caution - The concentration of investor assets in leveraged ETFs has led to market caution, particularly highlighted by a recent selloff following escalated trade tensions [5] - Historical data indicates that over half of leveraged ETFs launched more than three years ago have closed, with 17% losing over 98% of their value, emphasizing the risks associated with these investment vehicles [6] Selling Pressure from Leveraged ETFs - A report from JPMorgan estimated that approximately $26 billion in selling from leveraged ETFs contributed to market declines, indicating the potential for significant market impact from these products [6]

Core Insights - The closure of an exchange-traded product (ETP) in London and Milan serves as a cautionary tale for ETF investors, particularly in the leveraged fund segment [1][2] - Leveraged ETFs aim to track an index with a multiple, with some funds targeting returns that are two to three times that of the index, and even a 4X ratio for the S&P 500 Index [3] - A specific 3X inverse fund that aimed to move opposite to Advanced Micro Devices (AMD) faced significant losses due to a 30% rally in AMD's stock [4][5] Industry Implications - The existence of 3X leveraged ETFs in the U.S. is primarily based on indexes rather than single stocks, highlighting the unique risks associated with these products [4] - The rapid price movements in stocks like AMD can lead to substantial asset base erosion for inverse leveraged funds, particularly when such movements occur at market open [5] - Investors are advised to treat 3X leveraged funds differently from traditional ETFs, keeping in mind the complexities and risks associated with leverage [6] Investment Considerations - Understanding the potential for significant losses in leveraged funds is crucial, as a 10% rise in a stock can lead to a nearly 30% decline in a -3X ETF [6] - To recover from losses, a leveraged ETF may require a much larger percentage gain, emphasizing the need for careful risk management [6]

Group 1 - The company specializes in providing daily-rebalanced ETP products that include leveraged, unleveraged, inverse, and inverse leveraged factors [3] - The research focuses on macroeconomic assessments, strategic sector viability, and market data trends to inform investment decisions [1] - There is a significant interest in Asian markets, particularly India and China, with in-depth analyses published on economic trends and business narratives [1] Group 2 - The company does not hold any stock or derivative positions in the companies mentioned, ensuring an unbiased perspective in its analyses [2] - The asset under management (AUM) is primarily influenced by investor interest rather than market movements [3]