6 Comments for

All of the original 3x ETFs down over the past six months

• BigBeluga | April 25th, 2009 at 10:53 am
  

  Are you positive the daily leveraged 3x ETFs destroy value over any protracted period of time? I would agree that they destroy value over any extended time period when volatility is high – but these instrument seem to track pretty well in a rising market with low volatility. I backtested the 2x and 3x daily bullish strategies against the S&P 500, MSCI EAFE, MSCI Emerging Markets, and several other single country indices, and they seem to work well when the indices are over their 200 day SMA, and horribly below the 200 day SMA. I have not yet found a regime where any of the daily inverse strategies produce a profit. Check the bullish and bearish 3x ETFs against any index below the 200 day SMA – the most profitable strategy seems to be shorting *both*, since they destroy value during high volatility regimes.

• MS | April 26th, 2009 at 1:01 pm
  

  @BigBeluga: Not positive at all — if there is a protracted period where the markets move in one direction, with relatively low volatility, you are absolutely right that the 2x and 3x ETFs will do great. The difference between the leveraged and the indexes is the potential to lose due to volatility even if the directional bet is correct.

  Here’s what the prospectus says:

  Daily rebalancing will impair a Fund’s performance if the benchmark experiences volatility. For instance, a hypothetical 3X Bull Fund would be expected to lose 11% (as shown in the Table 1 below) if its benchmark provided no return over a one year period during which its benchmark experienced annualized volatility of 20%. A hypothetical 3X Bear Fund would be expected to lose 14% (as shown in the Table 1 below) if its benchmark provided no return over a one year period during which its benchmark experienced annualized volatility of 20%. If the benchmark’s annualized volatility were to rise to 40%, the hypothetical loss for a one year period for a Bull Fund widens to approximately 38% while the loss for a Bear Fund rises to 46%. At higher ranges of volatility, there is a chance of a near complete loss of Fund value even if the benchmark is flat. For instance, if annualized volatility of the benchmark is 90%, both a Bull and a Bear Fund targeted to the same benchmark would be expected to lose more than 90% of their value even if the cumulative benchmark return for the year was 0%.

• Tim Ayles | April 28th, 2009 at 11:27 am
  

  I run a virtual fund at Marketocracy since Feb 24th with this exact strategy – shorting both the long and short just to prove they are flawed. Market has gone straight up – but I am still up 6% in that time…… just short both and you are guaranteed over time to make money

• TheTradingReport » Blog Archive » NewsFlashr Business Editor’s Picks for April 30 2009 | April 30th, 2009 at 11:20 am
  

  [...] Microcap Speculator shows that All of the original 3x ETFs down over the past six months. This echoes a similar argument I have that “…it’s not a function of a tracking [...]

• Rickey | May 1st, 2009 at 12:33 pm
  

  The inverse funds are acting strange, but I think it’s caused by the funds inception date and the overall market at the time of inception.

  The “long” triples seem to be working fine. For instance, IWM is down 14.31% ytd and TNA is down 49%, just over 3x. This is close enough to not be a concern for a fund that is designed to track daily performance. UWM is down 32% ytd, a little over 2x IWM. Seems to be work fine to me.

• NewsFlashr Business Editor’s Picks for April 30 2009 | Penny Stock Trading System Blog | May 1st, 2009 at 3:51 pm
  

  [...] Microcap Speculator shows that All of the original 3x ETFs down over the past six months. This echoes a similar argument I have that “…it’s not a function of a tracking [...]

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