Rob Ivanoff: leveraged spread ETFs go green for the first time in the U.S. Sophisticated investors may be better off building individual spread trades with product by Direxion and ProShares

 
NY-based FactorShares has launched 5 futures-based spread ETFs with cost of 75 basis points. The offerings are first-of--kind spread ETFs and will allow sophisticated investors to simultaneously hold long and short positions in a  2X leveraged return format.

The funds are:

• FactorShares 2X: S&P500 Bull/TBond Bear (FSE)
• FactorShares 2X: TBond Bull/S&P500 Bear (FSA)
• FactorShares 2X: S&P500 Bull/USD Bear (FSU)
• FactorShares 2X: Oil Bull/S&P500 Bear (FOL)
• FactorShares 2X: Gold Bull/S&P500 Bear (NFSG) 

Financial advisors should keep in mind these are futures-based offerings, where contango and backwardation can impact returns. Also, like most leveraged funds, all ETFs are target to daily re-balancing, which may muddle up expected returns . They’re also not cheap at 75 b.p. 

Conclusion: Since spread ETFs are still unproven and market support is unknown (for now), sophisticated investors may be better off building up their own spread trades with established offerings that exist on the marketplace. The recommended leading brands for leveraged funds are Direxion and ProShares. Both firms have extensive product supporting mechanisms and best-in-class education.

To protect its intellectual capital, FactorShares has filed for a number of trademarks. On Tuesday, February 8, 2011, a U.S. federal trademark registration number 85237286 was filed for SPREAD ETF by FACTOR ADVISORS, LLC with the description financial investment in the field of securities. The firm also filed for 4 other trademarks including:

1. roll yield
   
2. factor
   
3. FactorShares
   
4. Factor ETF

Stuart Rosenthal, CEO of Factor Advisors has a background as a trader and director for Credit Suisse.