LEVERAGED exchange-traded funds (ETFs) designed to magnify short-term returns have fallen out of favor this year as investors who had embraced them are finding costs excessive in a calm market that is not rewarding bets on wild daily swings.

    The funds may continue to lack appeal as markets show no indication that fear will enter the trading equation anytime soon, with equities shrugging off all manner of negative headlines.

    Broad-market volume is down this year, with the most widely traded ETF, the SPDR S&P fund, posting a 13.8 percent drop in August from a year ago. Leveraged funds are getting hit even harder, with declines of 25 to 30 percent.

    Leveraged ETFs aim to offer daily returns at a multiple to an underlying index. But the funds carry high expense ratios and trading costs, making them less appealing because small daily moves are not enough to justify the expense.

    Market volatility has been non-existent of late. “In such a low-volatility environment, the institutional firms that use leveraged funds to hedge may not feel they’re worth the cost,” said Joel Dickson, senior ETF strategist at Vanguard in Valley Forge, Pennsylvania.

    (SD-Agencies)