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Investigation: Daily Financial Bear 3x Shares (FAZ)

Fitapelli Kurta is investigating customer complaints and potential lawsuits related to broker recommendations of Daily Financial Bear 3x Shares (FAZ), which is a short term inverse leveraged ETF.  Daily Financial Bear 3x Shares (FAZ) is an extremely risky and speculative product, which is often misunderstood by the brokers who recommend its purchase.    Specifically, Daily Financial Bear 3x Shares (FAZ) is designed to be held daily and we are interested in speaking to investors who lost money by holding the product for periods longer than one day.

Daily Financial Bear 3x Shares (FAZ) is a type of ETF known as an “inverse leveraged ETF.”  ETFs, or exchange traded funds, similar to mutual funds, offer investors an opportunity to pool their money into a fund that makes investments in a particular asset class (i.e. all bank health care stocks).  Unlike mutual funds, ETFs are traded at market prices on an exchange.  The goal of ETFs, such as Daily Financial Bear 3x Shares (FAZ), is to track a particular index or asset class.  Inverse ETFs are a type of ETF, which track the opposite of an index (i.e. when the market increases these funds decrease and vice versa).  Leveraged ETFs, such as Daily Financial Bear 3x Shares (FAZ), are ETFs that use leverage so the tracking effect is multiplied.  So for example, an inverse 3X leveraged ETF should increase 3X the decrease of the index that it is tracking.

Inverse leveraged ETFs, such as Daily Financial Bear 3x Shares (FAZ), “reset” each day, which means that they are designed to achieve their stated objectives (i.e. tracking an index) only on a daily basis and no longer.  In fact the prospectus these ETFs, such as Daily Financial Bear 3x Shares (FAZ), actually warn investors that if the ETF is held for periods longer than one day, returns will begin to differ from the underlying index.  It is possible, therefore for an index to be flat (i.e. returning a zero return), but the ETF that is held over the same period may be down considerably.

Brokers often market inverse leveraged ETFs, such as Daily Financial Bear 3x Shares (FAZ), to clients as a means of hedging against market losses.  These brokers also recommend that Daily Financial Bear 3x Shares (FAZ) be held for very long periods of time (i.e. longer than a single day).  This advice is always inappropriate because products such as Daily Financial Bear 3x Shares (FAZ) are not designed to be held for periods of longer than one day.  Thus holding securities such as Daily Financial Bear 3x Shares (FAZ) makes little sense from an investment prospective – even its own prospectus will state this.

In a period where the overall market is increasing, brokers recommend Daily Financial Bear 3x Shares (FAZ) as a long term “hedge” without really understanding the product.  Daily Financial Bear 3x Shares (FAZ) should never be held for periods of longer than one day as doing so would be a reckless “strategy,” which could ultimately end in catastrophic losses.

Our firm has successfully prosecuted cases involving brokers that have recommended Daily Financial Bear 3x Shares (FAZ).  If you or someone you know lost money investing in Daily Financial Bear 3x Shares (FAZ), we are interested in speaking to you. Time to recover your losses is limited – contact us today for a free consultation.