Leveraged ETFs Decay Dashboard

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Includes: BDCL, BDCS, DGLD, DIA, DRN, DRV, DSLV, DUST, DWTI, EDC, EDZ, EEM, ERX, ERY, GDX, GLD, IWM, LABD, LABU, NUGT, OIL, QQQ, SDOW, SDY, SDYL, SLV, SPXU, SPY, SQQQ, TLT, TMF, TMV, TNA, TQQQ, TZA, UDOW, UGLD, UPRO, USLV, UWTI, VNQ, XBI, XLE
by: Fred Piard

Summary

Reminder about the decay sources.

Trailing 1-month and 1-year decay of major leveraged ETFs.

The worst ETFs of the month.

I measure once a month the decay of major leveraged ETFs. It may be useful for anyone using leveraged ETFs for investing, trading or hedging. Click "Follow" at the top of this page if you want to be notified of monthly updates.

What is the decay?

Most of the time, a leveraged ETF does worse than the underlying asset leveraged by the same factor. This relative decay has several reasons: beta-slippage, roll yield, tracking errors, management fees. Only the latter is predictable. Roll yield may be prominent for commodity ETFs (leveraged or not), but beta-slippage is usually the main reason of decay. However, it doesn't always result in decay. When an asset is trending with little volatility, a leveraged ETF can bring an excess return over the leveraged asset. You can click here to read an explanation of beta-slippage with examples.

Monthly and Yearly Drifts on 6/10/2016

Definitions are needed. "Lev" is the leveraging factor. "Return" is the total return of an ETF (including dividends). "IndexReturn" is the total return of the underlying index, measured on a non-leveraged ETF (also with dividends). "ETFdrift" is the drift of the ETF relative to the leveraged index. "TradeDrift" is the drift relative to an equivalent position in the non-leveraged index. ETFdrift and TradeDrift are calculated as followed, where Abs is the absolute value operator.

ETFdrift = Return - (IndexReturn x Lev)

TradeDrift = ETFdrift / Abs(Lev)

"Decay" is negative drift. "Month" stands for 21 trading days, "year" for 252 trading days.

A drift is the difference between 2 returns, so it can be below -100%.

Index

Lev.

Ticker

1-month Return

1-month ETFdrift

1-month TradeDrift

1-year Return

1-year ETFdrift

1-year TradeDrift

S&P 500

1

SPY

1.74%

0.00%

0.00%

2.68%

0.00%

0.00%

3

UPRO

4.95%

-0.27%

-0.09%

-2.23%

-10.27%

-3.42%

-3

SPXU

-5.39%

-0.17%

-0.06%

-21.72%

-13.68%

-4.56%

ICE US20+yr Tbond

1

TLT

2.70%

0.00%

0.00%

19.04%

0.00%

0.00%

3

TMF

7.96%

-0.14%

-0.05%

57.27%

0.15%

0.05%

-3

TMV

-8.32%

-0.22%

-0.07%

-48.47%

8.65%

2.88%

NASDAQ 100

1

QQQ

2.66%

0.00%

0.00%

1.73%

0.00%

0.00%

3

TQQQ

7.66%

-0.32%

-0.11%

-7.97%

-13.16%

-4.39%

-3

SQQQ

-8.27%

-0.29%

-0.10%

-25.17%

-19.98%

-6.66%

DJ 30

1

DIA

0.73%

0.00%

0.00%

2.48%

0.00%

0.00%

3

UDOW

1.69%

-0.50%

-0.17%

-2.43%

-9.87%

-3.29%

-3

SDOW

-2.32%

-0.13%

-0.04%

-20.53%

-13.09%

-4.36%

Russell 2000

1

IWM

4.74%

0.00%

0.00%

-5.25%

0.00%

0.00%

3

TNA

14.09%

-0.13%

-0.04%

-25.43%

-9.68%

-3.23%

-3

TZA

-14.28%

-0.06%

-0.02%

-9.12%

-24.87%

-8.29%

S&P Select Energy

1

XLE

5.21%

0.00%

0.00%

-9.22%

0.00%

0.00%

3

ERX

16.24%

0.61%

0.20%

-43.07%

-15.41%

-5.14%

-3

ERY

-15.83%

-0.20%

-0.07%

-20.64%

-48.30%

-16.10%

MSCI US REIT

1

VNQ

-1.64%

0.00%

0.00%

15.53%

0.00%

0.00%

3

DRN

-5.59%

-0.67%

-0.22%

36.31%

-10.28%

-3.43%

-3

DRV

3.75%

-1.17%

-0.39%

-47.88%

-1.29%

-0.43%

ARCA Gold Miners

1

GDX

7.91%

0.00%

0.00%

40.06%

0.00%

0.00%

3

NUGT

15.68%

-8.05%

-2.68%

12.17%

-108.01%

-36.00%

-3

DUST

-33.70%

-9.97%

-3.32%

-93.66%

26.52%

8.84%

MSCI Emerging

1

EEM

4.15%

0.00%

0.00%

-12.97%

0.00%

0.00%

3

EDC

12.20%

-0.25%

-0.08%

-45.68%

-6.77%

-2.26%

-3

EDZ

-12.49%

-0.04%

-0.01%

4.71%

-34.20%

-11.40%

S&P GSCI Oil

1

OIL

15.24%

0.00%

0.00%

-46.42%

0.00%

0.00%

3

UWTI

36.35%

-9.37%

-3.12%

-89.14%

50.12%

16.71%

-3

DWTI

-29.81%

15.91%

5.30%

11.34%

-127.92%

-42.64%

Gold spot

1

GLD

0.22%

0.00%

0.00%

6.57%

0.00%

0.00%

3

UGLD

0.08%

-0.58%

-0.19%

11.21%

-8.50%

-2.83%

-3

DGLD

-1.21%

-0.55%

-0.18%

-29.98%

-10.27%

-3.42%

Silver spot

1

SLV

1.17%

0.00%

0.00%

7.51%

0.00%

0.00%

3

USLV

1.88%

-1.63%

-0.54%

-0.80%

-23.33%

-7.78%

-3

DSLV

-5.80%

-2.29%

-0.76%

-45.77%

-23.24%

-7.75%

Wells Fargo BDC

1

BDCS

0.96%

0.00%

0.00%

-2.14%

0.00%

0.00%

2

BDCL

3.46%

1.54%

0.77%

-6.22%

-1.94%

-0.97%

S&P Div. Aristocrats

1

SDY

1.91%

0.00%

0.00%

13.54%

0.00%

0.00%

2

SDYL

3.56%

-0.26%

-0.13%

25.01%

-2.07%

-1.04%

S&P Biotech Select

1

XBI

8.68%

0.00%

0.00%

-29.01%

0.00%

0.00%

3

LABU

24.13%

-1.91%

-0.64%

-80.08%

6.95%

2.32%

-3

LABD

-27.28%

-1.24%

-0.41%

-10.48%

-97.51%

-32.50%

Click to enlarge

BDCL, SDYL are Exchange-Traded Notes. ETNs entail additional counterparty risks.

2 ETNs and 2 ETFs from my followers' wish list have been added to the dashboard this month: BDCL, SDYL, LABU, LABD. Their non-leveraged siblings are also in the table as benchmarks. CEFL and MORL stay out for technical reasons. A useful reminder, especially for BDCL: dividends are accounted and reinvested to calculate the total return.

The worst decays of the month are in NUGT, DUST (long and short mining) and UWTI (long oil). The highest positive drift is in DWTI (short oil). Such a positive drift in a streak of daily losses is normal: leveraged ETFs cannot go below zero, their losses tend to be asymptotic. BDCL has also a positive drift due to beta-slippage, not to the magnified dividend (it is quarterly and there was none since April).

In the yearly data, the worst decays are in DWTI (short oil), NUGT (long mining), LABD (short biotech). They have a TradeDrift below -30%, which means an underperformance of more than 30% on the non-leveraged asset exposure. ERY (short energy) and EDZ (short emerging markets) have also suffered yearly trade decays above 10%. The highest positive drift is for UWTI (long oil), in a large loss.

Note of caution: the leveraged ETF decay looks like an invitation to short sellers. Selling short leveraged ETFs has unpredictable risks and costs listed in another article.

Click "follow" at the top to be notified of my dashboard monthly updates.

Data provided by portfolio123.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.