"The problem is, while inverse/leveraged funds are appropriate for some sophisticated investors in small doses, they have been sold more aggressively in some cases. Inverse/leveraged funds are best for institutional or high-net-worth investors who want to hedge exposure and protect against short-term market issues, says David Kathman, senior mutual fund analyst with Morningstar. Allocations should be no more than about 5 percent, he added. 'Even then, I would hope they would be cautious because these types of things can turn on a dime.'”
Registered Rep notes however, that advisors have been putting up to 30% of unsophisticated clients' assets in these unsuitable vehicles. The article warns that people should "[e]xpect a wave of claims this year against financial advisors and broker/dealers who recommended certain Direxion, Rydex and ProFunds leveraged and inverse funds, last year's worst performing mutual funds, say securities attorneys."
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