Leveraged ETFs - the rules of the game

As sensitivity returns to a markets, it's value revisiting leveraged ETFs and a tracking blunder compared with these products. The manners of a diversion have been simple:

1. Leveraged ETFs do good relative to a underlying index in trending markets,
2. underperform in mean-reverting markets,
3. underperform significantly in mean-reverting tall sensitivity markets,
4. underperform over longer periods of time,
5. different (bear) leveraged ETFs underperform some-more than a homogeneous precedence longhorn ETFs. The tracking blunder for a bear ETF is homogeneous to a longhorn ETF with an extra spin of leverage. That is an different ETF tracking blunder is homogeneous to which of a 2x longhorn ETF. The blunder for a 2x different ETF is homogeneous to which of a 3x longhorn ETF, etc.

The draft below shows a intensity underperformance (in a mean-reverting market) for leveraged longhorn ETFs over a one-month duration (roughly) as a function of every day volatility.





The draft below shows a same for different ETFs (bear ETFs).





Here is an example of what happens with leveraged ETFs over a longer duration of time. The draft below compares TNA, a 3x Russel 2000 ETF with a opening of Russell 2000 (small top index). The index is up a little 12% YTD, whilst TNA instead of being up three times which is actually up less than half for a year.





So if we unequivocally similar to risk, by all means take advantage of all a precedence accessible out there (before a SEC takes a little "anti-derivatives" movement opposite these products), but keep aware of a nasty tracking error.


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