Vanguard gives day traders the stiff-arm by dropping inverse, leveraged strategy funds

The king of buy-and-hold investing removes rapid-fire funds that use leverage and short selling strategies

Jan 9, 2019 @ 2:02 pm

By Jeff Benjamin

The Vanguard Group, underscoring its dedication to buy-and-hold investing, is taking another step to give day traders the boot from its brokerage platform.

The $5 trillion asset management complex announced Tuesday that it is removing access to leveraged and inverse-strategy funds, both popular day-trading tools, starting Jan. 22.

"If you think about the investment philosophy long espoused by Vanguard, these products are just not aligned with that," said spokeswoman Emily Farrell. "These products are incompatible with a buy-and-hold strategy."

An example of the kinds of funds being removed from the platform is the $344 million ProShares Short VIX Short Term Futures (SVXY), which declined by more than 91% last year, but gained more than 181% in 2017.

Another example is the $25 million Direxion Daily Natural Gas Related Bull 3X (GASL), which lost almost 80% last year and was down more than 43% in 2017.

The number changes almost daily, but Vanguard estimates there are at least 400 mutual funds, exchange-traded funds and exchange-traded notes that use inverse and leveraged strategies, which can generate extreme volatility if used for long-term investing purposes.

"These kinds of strategies can be harmful to investor portfolios if used incorrectly because the trends can quickly move against you," said Todd Rosenbluth, director of mutual fund and ETF research at CFRA.

The news is the latest in a series of platform and fund management changes at Vanguard, but this is one that investors might have seen coming.

Last summer, when Vanguard lifted commissions on 1,800 ETFs, which was an expansion from 77, the inverse and leveraged funds were not included.

"[Vanguard officials] had previously put up a roadblock on frequent trading of leveraged and inverse ETFs, and now they put up a permanent barrier," said Mr. Rosenbluth.

Asked about the potential for losing some trading activity, and revenue, on the brokerage platform, Ms. Farrell said, "It is certainly possible."

"This is new, but the underlying philosophy at Vanguard is certainly not new," she added.

Direxion, a fund complex made up largely of leveraged and inverse-strategy products, released a statement that reads in part, "We are aware of the long-term focus held by most Vanguard investors, but also believe the more tactical trading instruments we offer can be effective tools for well-suited investors who understand their short-term focus."

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

The power of commodities in 2019

Historically commodities have outperformed stocks at the end of expansions and in early recessions. So why haven't commodities rebounded? John Love of USCF explains.

Latest news & opinion

Look for more changes at Cetera Financial Group

CEO Robert Moore's resignation signals further adjustments at the IBD network.

10 top scams targeting seniors

Phone calls to a Senate committee hotline show trends in frauds perpetrated against seniors.

Robert Moore, Cetera CEO, stepping down for health reasons

Chairman Ben Brigeman will serve as interim chief executive while a search for a permanent CEO is conducted.

The AMT is no longer a problem for many clients

With income thresholds higher and a lower SALT deduction after tax reform, the AMT will realistically only apply to wealthy Americans with out-of-the-ordinary tax events.

Cetera, other broker-dealers refuse to sign Ohio National contracts

Advisers wonder what the lack of a formal brokerage agreement means from a regulatory standpoint.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print