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Investigation: Barclays Short B Leveraged Inverse S&P 500 TR ETN (BXDB)

Fitapelli Kurta is investigating customer complaints and potential lawsuits related to broker recommendations of Barclays Short B Leveraged Inverse S&P 500 TR ETN (BXDB), which is a short term inverse leveraged ETF.  Barclays Short B Leveraged Inverse S&P 500 TR ETN (BXDB) is an extremely risky and speculative product, which is often misunderstood by the brokers who recommend its purchase.    Specifically, Barclays Short B Leveraged Inverse S&P 500 TR ETN (BXDB) 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.

Barclays Short B Leveraged Inverse S&P 500 TR ETN (BXDB) 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 Barclays Short B Leveraged Inverse S&P 500 TR ETN (BXDB), 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 Barclays Short B Leveraged Inverse S&P 500 TR ETN (BXDB), 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 Barclays Short B Leveraged Inverse S&P 500 TR ETN (BXDB), “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 Barclays Short B Leveraged Inverse S&P 500 TR ETN (BXDB), 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 Barclays Short B Leveraged Inverse S&P 500 TR ETN (BXDB), to clients as a means of hedging against market losses.  These brokers also recommend that Barclays Short B Leveraged Inverse S&P 500 TR ETN (BXDB) be held for very long periods of time (i.e. longer than a single day).  This advice is always inappropriate because products such as Barclays Short B Leveraged Inverse S&P 500 TR ETN (BXDB) are not designed to be held for periods of longer than one day.  Thus holding securities such as Barclays Short B Leveraged Inverse S&P 500 TR ETN (BXDB) 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 Barclays Short B Leveraged Inverse S&P 500 TR ETN (BXDB) as a long term “hedge” without really understanding the product.  Barclays Short B Leveraged Inverse S&P 500 TR ETN (BXDB) 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 Barclays Short B Leveraged Inverse S&P 500 TR ETN (BXDB).  If you or someone you know lost money investing in Barclays Short B Leveraged Inverse S&P 500 TR ETN (BXDB), we are interested in speaking to you. Time to recover your losses is limited – contact us today for a free consultation.