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 theory.

1-month and 1-year decays of major leveraged ETFs.

The worst decays 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 10/8/2016

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 a 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

-1.09%

0.00%

0.00%

9.17%

0.00%

0.00%

3

UPRO

-3.95%

-0.68%

-0.23%

20.18%

-7.33%

-2.44%

-3

SPXU

2.26%

-1.01%

-0.34%

-32.03%

-4.52%

-1.51%

ICE US20+yr Tbond

1

TLT

-2.63%

0.00%

0.00%

12.43%

0.00%

0.00%

3

TMF

-8.23%

-0.34%

-0.11%

33.25%

-4.04%

-1.35%

-3

TMV

7.57%

-0.32%

-0.11%

-37.23%

0.06%

0.02%

NASDAQ 100

1

QQQ

1.31%

0.00%

0.00%

12.97%

0.00%

0.00%

3

TQQQ

3.22%

-0.71%

-0.24%

29.70%

-9.21%

-3.07%

-3

SQQQ

-4.95%

-1.02%

-0.34%

-41.79%

-2.88%

-0.96%

DJ 30

1

DIA

-1.21%

0.00%

0.00%

9.65%

0.00%

0.00%

3

UDOW

-4.25%

-0.62%

-0.21%

22.31%

-6.64%

-2.21%

-3

SDOW

2.84%

-0.79%

-0.26%

-32.43%

-3.48%

-1.16%

Russell 2000

1

IWM

-1.59%

0.00%

0.00%

8.00%

0.00%

0.00%

3

TNA

-5.83%

-1.06%

-0.35%

10.73%

-13.27%

-4.42%

-3

TZA

2.97%

-1.80%

-0.60%

-37.69%

-13.69%

-4.56%

S&P Select Energy

1

XLE

-1.12%

0.00%

0.00%

4.72%

0.00%

0.00%

3

ERX

-5.02%

-1.66%

-0.55%

-10.03%

-24.19%

-8.06%

-3

ERY

-0.16%

-3.52%

-1.17%

-43.90%

-29.74%

-9.91%

MSCI US REIT

1

VNQ

-7.72%

0.00%

0.00%

8.16%

0.00%

0.00%

3

DRN

-22.65%

0.51%

0.17%

13.03%

-11.45%

-3.82%

-3

DRV

23.90%

0.74%

0.25%

-34.73%

-10.25%

-3.42%

ARCA Gold Miners

1

GDX

-17.56%

0.00%

0.00%

50.53%

0.00%

0.00%

3

NUGT

-48.42%

4.26%

1.42%

49.20%

-102.39%

-34.13%

-3

DUST

56.29%

3.61%

1.20%

-94.06%

57.53%

19.18%

MSCI Emerging

1

EEM

-0.79%

0.00%

0.00%

7.73%

0.00%

0.00%

3

EDC

-3.84%

-1.47%

-0.49%

5.26%

-17.93%

-5.98%

-3

EDZ

-0.41%

-2.78%

-0.93%

-41.71%

-18.52%

-6.17%

S&P GSCI Oil

1

OIL

2.71%

0.00%

0.00%

-34.98%

0.00%

0.00%

3

UWTI

6.39%

-1.74%

-0.58%

-80.55%

24.39%

8.13%

-3

DWTI

-16.27%

-8.14%

-2.71%

-24.21%

-129.15%

-43.05%

Gold spot

1

GLD

-6.15%

0.00%

0.00%

9.71%

0.00%

0.00%

3

UGLD

-18.12%

0.33%

0.11%

19.36%

-9.77%

-3.26%

-3

DGLD

20.14%

1.69%

0.56%

-35.65%

-6.52%

-2.17%

Silver spot

1

SLV

-10.85%

0.00%

0.00%

10.74%

0.00%

0.00%

3

USLV

-31.39%

1.16%

0.39%

8.49%

-23.73%

-7.91%

-3

DSLV

36.20%

3.65%

1.22%

-49.34%

-17.12%

-5.71%

Wells Fargo BDC

1

BDCS

-1.52%

0.00%

0.00%

15.38%

0.00%

0.00%

2

BDCL

-3.16%

-0.12%

-0.06%

28.84%

-1.92%

-0.96%

S&P Div. Aristocrats

1

SDY

-3.19%

0.00%

0.00%

15.87%

0.00%

0.00%

2

SDYL

-5.25%

1.13%

0.57%

33.99%

2.25%

1.13%

S&P Biotech Select

1

XBI

1.01%

0.00%

0.00%

1.26%

0.00%

0.00%

3

LABU

0.82%

-2.21%

-0.74%

-35.39%

-39.17%

-13.06%

-3

LABD

-8.09%

-5.06%

-1.69%

-63.48%

-59.70%

-19.90%

Click to enlarge

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

The worst decays of the month are in DWTI (short oil), LABD (short biotechnology) and USLV (long silver). The highest positive drift are NUGT, DUST (long and short miners), DSLV (short silver). It is interesting to note that in a strong trend (down here for precious metal miners), both the long and short leveraged ETFs may have a significant positive drift.

In the yearly data, the worst decays are in NUGT (long miners), DWTI (short oil), and in a lesser extent LABU and LABD (long and short biotechnology). The biotechnology index has been whipsawed for little change in one year, but big losses in both short and long leveraged ETFs. The highest positive drifts are for DUST (short miners), and UWTI (long oil). Both are cases of asymptotic loss (they went down 94% and 80% respectively in one year). The only product of the list in gain with a positive drift is SDYL, mainly because its volatility was moderate and the leveraged dividend included in the return does not suffer from beta-slippage.

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 this other article.

If you like this, click "follow" at the top to be notified of my dashboard monthly updates. You may also be interested in my free weekly Market Timing Signals.

Data provided by portfolio123.

Disclosure: I am/we are long SPXU.

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.

Additional disclosure: I hold SPXU shares for hedging purposes.