Many investors don't fully understand how these vehicles work. Leveraged ETFs are designed to deliver some multiple of the daily performance of whatever underlying index the ETF tracks. But over time, daily movements in the underlying index can create losses for those who hold shares over longer periods of time -- even if the index rises on the whole.
Regulators recently voiced concern over the sustainability of these investment vehicles as long-term investments. The independent regulatory organization FINRA warned about the risks of inverse and leveraged ETFs this spring, stating that they are "unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets."
In response, many of the big cats on Wall Street have either stopped selling leveraged ETFs, or placed restrictions on sales. Fidelity and Schwab (Nasdaq: SCHW) have warned investors about using them, while UBS (NYSE: UBS) and the Morgan Stanley Smith Barney joint venture of Morgan Stanley (NYSE: MS) and Citigroup (NYSE: C) have simply stopped selling them for the moment.
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