New exchange-traded product provider Boost ETP has listed its first range of products on the London Stock Exchange.
The two newly listed ETPs are designed to return 3x the daily movement, long or short, of the FTSE 100 index.
The 3UKL will provide long exposure equal to 3x the daily change of the FTSE 100 super leveraged RT TR Index, less fees and adjustments. The 3UKS will provide long exposure equal to 3x the daily change of the FTSE 100 Daily Ultra Short Strategy RT Gross TR Index, less fees and adjustments.
The 3UKL has a management fee of 75 basis points, while the 3UKS costs 80 basis points. The ETPs also carry a daily swap fee of 0.389 basis points and 0.083 basis points for 3UKL and 3UKS, respectively.
The leveraged ETPs work by amplifying daily rises and falls in the FTSE 100 index. For example, if the FTSE 100 rises by 1% on a particular day, then 3UKL will rise by 3% and 3UKS will fall by 3%. However, if the FTSE 100 falls by 1% then 3UKL will fall by 3% and 3UKS will rise by 3%, according to a statement from the firm.
Leveraged ETPs have been the subject of particular scrutiny from regulators. In August the US Securities and Exchange Commission labelled them “difficult to understand” and “potentially unsuitable for long term investors”, echoing a similar warning from the Financial Regulatory Authority in 2009.
Hector McNeil co-CEO said in a statement: “We believe that Boost FTSE 100 3x Leverage Daily ETP and Boost FTSE 100 3x Short Daily ETP are exciting additions to the UK ETP market and introduce an investment product which investors currently demand, but are not yet available. 3UKL and 3UKS will provide 3x long and 3x short exposure to the daily change in the FTSE 100 index.”
He continued: “The average daily change in the FTSE 100 index was 1% per day versus 2% p.a. over the past five years for a buy and hold investment. As a result, Boost’s 3x leveraged and 3x short ETPs provide sophisticated investors valuable new tools to potentially enhance their investment returns or hedge market risks.”
Sudir Raju, managing director of ETP Relationships, FTSE Group, said in a statement: “We are delighted that Boost has chosen to license FTSE indices as the basis for their inaugural product launch and look forward to continuing to provide transparent, liquid and innovative index structures to support the further expansion of their product suite.”
According to Boost, the ETPs will be backed in two ways. Depending on the credit rating of Boost’s counterparties, the mix of sovereign bonds held in the posted collateral will slowly increase and no cash or collateral will be delivered by Boost to a counterparty unless Boost has received payment first.
The two listings come days after the firm announced it was planning to unveil up to 100 leveraged and short ETPs over the next 18 months. The first 20 products will be listed in the coming months, initially offering equity and commodity market exposure.
The Jersey-based provider was set up in October this year by ex-ETF Securities founders Hector McNeil and Nik Bienkowski.