Leveraged Exchange Traded Products (ETPs) that use margin borrowing to achieve leveraged exposures invest their own assets plus assets borrowed through a margin account directly in the shares of the underlying companies.
This method incurs borrowing costs related to margin borrowing, but avoids credit risks since it physically owns the underlying shares.
Swap-based leveraged ETPs do not invest directly in the underlying stocks and instead enter into over-the-counter (OTC) swap agreements with a counterparty. These swaps can have associated costs as well as be susceptible to credit risk.