One Family's Blog

Leveraged ETF Performance YTD

The perceived underperformance is just that - perceived...

The 3X inverse financial ETF inversely tracks the performance of the underlying Russell 1000 Financial Index on a DAILY basis 3X leverage. The volatilty however works against you.

Below is a quick example assuming indexes at 100 as the starting point:

1st day (index up 3% - 103) - FAZ at 91
2nd day (index down 3% - 99.91) - FAZ at 99.19
3rd day (index up 5% - 104.9) - FAZ at 84.3
4th day (index down 10% - 94.41) - FAZ at 109.59

So, over the course of just 4-days, there is a perceived underperformance - FAZ should have been at 116.77. But, the index tracks daily performance and so volatilty works against you. Moral of the story - leveraged indexes should only be used as short-term trading tools (not suitable for anything more than a holding period of a few days or for intra-day trades)...

Regards,
www.onefamilysblog.com