Do you buy leveraged and inverse funds, and do you make those trades on Vanguard’s brokerage platform? Well, you’ve got two weeks left to do it because as of January 22 Vanguard will no longer accept purchases in leveraged or inverse mutual funds, exchange-traded funds or exchange-traded notes, the company announced Tuesday.
Leveraged funds aim to achieve an investment return that’s double (2x) or triple (3x) the gains or losses of a specific benchmark or index. Inverse funds, also know as “short” funds, are designed to deliver the opposite of the performance of the index or benchmark they track. Leveraged inverse funds seek to deliver multiples of the opposite of an index’s performance.
Vanguard has long offered commission-free trades on its own ETFs on its brokerage platform, and last summer it significantly expanded that to enable its retail brokerage customers—and financial advisors authorized to trade on those accounts for their clients—to make commission-free trades on nearly 1,800 U.S.-listed ETFs. That didn’t include leveraged or inverse products.
Investors could still buy leveraged or inverse ETFs on Vanguard’s platform, but not commission-free. In two weeks, though, Vanguard will shut the door on making any purchases of these funds on its platform.
“We believe these types of products are very speculative and highly complex, and generally don’t fit with the buy-and-hold strategy that Vanguard and most of our clients share,” a Vanguard spokesperson said.
She noted that leveraged and inverse products are more prevalent among ETFs and ETNs, but there are about 100 mutual funds that fall into these categories. Either way, they represent a very small amount of activity on Vanguard’s platform.
In a statement, Vanguard said customers who hold leveraged or inverse funds can continue to hold them, sell them or transfer them in kind from or to other institutions.