RPT-Massachusetts begins probe of leveraged ETFs

BOSTON, July 15 (Reuters) - Massachusetts' top securities regulator has begun an inquiry into the sales practices of three firms involved in structuring leveraged exchange traded funds, which can be used to bet against Treasury bonds.

Massachusetts' Secretary of State William Galvin said in a statement on Wednesday that he had sent letters to three firms heavily involved in structuring these funds: Rydex Investments, Direxion Funds, and ProShares.

"Since 2006 these products have become increasingly popular. Yet, due to the daily nature of the leverage employed, there is no guarantee of amplified annual returns, and they generally incur greater transactions costs than traditional exchange traded funds," Galvin said.

Leveraged exchange-traded funds are generally index funds that seek to offer magnified or inverse-magnified returns of major stock benchmarks through the use of leverage on a daily basis. They often use derivatives like index options, index futures, total return swaps and equity swaps to increase or reduce market exposure. (Reporting by Jason Szep, editing by Gerald E. McCormick)