Are Leveraged ETF Rebalancing Fears Overblown?

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Includes: SPXU-OLD
by: Jack Holland

For the SPXU, rebalancing appears to be keeping this fund in lock step with the S&P 500. The chart above shows the SPXU tracking just as it should be. I keep reading warnings that leveraged ETFs rebalance every day, which can erode the position. The only thing I see eroding a position in the SPXU is whether or not the S&P 500 happened to close below the investor’s entry point into the position, no different than the expected behavior on any other stock in the market. Your stock goes up; your stock price goes up. In the case of the SPXU, the S&P goes up; the SPXU goes down in a parallel manner at 3X leverage.

Caveat: I suspect that most investors may not have the stomach for the volatility of trading such a fund, and if you are not able to weather large swings of up to 15% and beyond on a daily or weekly basis, then this fund is definitely not for you, because if the market runs against your position, you could get wiped out. Therefore, probably 99% of all investors should avoid this fund like the plague.

Disclosure: I am long SPXU, starting October 19.

Disclaimer: I am not an investment advisor and do not claim to be one. Anyone investing in the U.S. stock market should consult a professional broker prior to investing. I share this information for thoughtful consideration and learning purposes only. None of my statements are intended to persuade any one to invest in any particular stock, fund, or otherwise. Furthermore, I view the U.S. stock market as a rigged casino that is not in the individual investors' favor.