Fatty

New Direxion Triple Leverage Funds: Proceed with Caution

Exactly Kav, the funds are only intended to target the ONE DAY returns.

Since doubling the 1 day returns and taking the net yield does not equal double the yield of the single day returns, the ETF is not expected to mimic the leverage ratio * the long term yield of the targeted asset.

Check out my blog post for more info

Triple Leverage ETFs Should Be Reserved for the Strongest Conviction

User 52851 -- its not possible for it to go down more than 100%.

So ideally, since its targeting the daily returns, the fund management should have some sort of constant rebalancing strategy in place. For small moves, a periodic rehedging using derivatives should allow them to maintain the approximate leverage ratio. However, as the underlying, targeted asset moves more, the fund will have to rehedge to readjust the leverage ratio.

Basically, I think they would try to provide an "instantaneous" 3x returning portfolio. In typical cases, a day-over-day portfolio value would match this. If they rehedged intraday, it would be from the point where the fund was rehedged that it would be "returning 3x".

So for example, if the benchmark was up 30% and the 3x bear ETF was hedged at every 10% interval, the ETF would be down 30%, three times, or .70*.70*.70 = 44% of the fund would remain at the end of the day, so down 56%. Depending on what their rebalancing strategy was, it could lead to dramatically different end-of-day returns,

Highly Volatile, New, Direxion Triple ETFs Could Revolution Day Trading

Beware the large expense ratios of these funds. They are definitely no good for long term holdings as the day-to-day volatility will dampen the returns over time.

Depending on the index return you are targeting, it may be beneficial to use futures to achieve the same leverage ratio (if a liquid future is available).

Direxion Launches 3X Leveraged ETFs

Check out my post about the pitfalls of 3x levered ETFs at FattyFatFat

Direxion Launches 3X Leveraged ETFs

Levered ETFs sound great at first, especially if you're looking to make big bets, but ultimately they're not a good investment.

There are better ways to achieve the same level of leverage.