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In this episode of ETF Spotlight, Neena Mishra spoke with Sylvia Jablonski, Managing Director at Direxion Investments. Direxion is one of the largest issuers of leveraged and inverse ETFs. These ETFs are among the most misunderstood products in the ETF world.

Leveraged ETFs are complex but very interesting products but they are appropriate only for sophisticated investors who understand them properly.

First off, Sylvia explained how these ETFs work and achieve the exposure using derivatives, typically swaps and futures. She then walked us through the daily rebalancing as these ETFs are designed to achieve their stated performance goal on a daily basis, using the Direxion Daily S&P 500 Bull 3X Shares (NYSE: SPXL) as an example.

Over a period longer than one day, their performance can differ significantly from their stated daily performance objectives. Compounding can have both favorable and adverse effects on the returns. These products perform best in trending markets with low volatility.

We then discussed the benefits of these products, how investors should use these strategies and took a look at some leveraged and inverse ETFs that are seeing more interest of late.

A healthy financial future starts with proper investments. Use Benzinga's guides and tools to find the best investment strategy, and the right products to use.

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The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

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