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Triple-X ETFs Now Taboo at Vanguard as Regulators Look Other Way

Bradley Keoun

Some financial products are so risky that big firms sometimes decide not to sell them despite their popularity -- out of fear that customers will end up with such devastating losses that refunds are sought, lawsuits are filed or tales of woe are peddled to a sympathetic news reporter. Vanguard Group, the $5.1 trillion money manager, said this week that starting on Jan. 22 it will stop selling the ETFs, which use complex financial engineering to amplify market returns, using a concept known as "leverage." In addition to banning the the so-called leveraged ETFs, Vanguard will also halt sales of "inverse ETFs," which use similar financial-engineering techniques to provide investors with fat gains whenever stocks fall. Three years ago, U.S. regulators tagged the leveraged and inverse ETFs as among the riskiest Wall Street inventions to emerge as part of the rapid growth in the ETF industry as a whole, where total assets globally have swelled sixfold over the past decade to $4.79 trillion, based on the latest count by the research firm ETFGI.com.