Leveraged ETFs Decay Dashboard

| About: ProShares UltraPro (SPXU)

Summary

The sources of decay (reminder).

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.

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 1/13/2017

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

0.71%

0.00%

0.00%

22.54%

0.00%

0.00%

3

UPRO

1.77%

-0.36%

-0.12%

72.18%

4.56%

1.52%

-3

SPXU

-2.29%

-0.16%

-0.05%

-50.37%

17.25%

5.75%

ICE US20+yr Tbond

1

TLT

3.81%

0.00%

0.00%

-0.14%

0.00%

0.00%

3

TMF

11.38%

-0.05%

-0.02%

-7.18%

-6.76%

-2.25%

-3

TMV

-11.31%

0.12%

0.04%

-10.60%

-11.02%

-3.67%

NASDAQ 100

1

QQQ

3.48%

0.00%

0.00%

21.79%

0.00%

0.00%

3

TQQQ

10.31%

-0.13%

-0.04%

65.08%

-0.29%

-0.10%

-3

SQQQ

-10.00%

0.44%

0.15%

-51.78%

13.59%

4.53%

DJ 30

1

DIA

0.56%

0.00%

0.00%

26.28%

0.00%

0.00%

3

UDOW

1.05%

-0.63%

-0.21%

88.90%

10.06%

3.35%

-3

SDOW

-1.71%

-0.03%

-0.01%

-54.41%

24.43%

8.14%

Russell 2000

1

IWM

-0.74%

0.00%

0.00%

36.85%

0.00%

0.00%

3

TNA

-2.65%

-0.43%

-0.14%

128.14%

17.59%

5.86%

-3

TZA

1.40%

-0.82%

-0.27%

-68.49%

42.06%

14.02%

S&P Select Energy

1

XLE

-2.55%

0.00%

0.00%

42.54%

0.00%

0.00%

3

ERX

-8.10%

-0.45%

-0.15%

136.84%

9.22%

3.07%

-3

ERY

7.23%

-0.42%

-0.14%

-76.03%

51.59%

17.20%

MSCI US REIT

1

VNQ

0.84%

0.00%

0.00%

13.77%

0.00%

0.00%

3

DRN

1.74%

-0.78%

-0.26%

31.27%

-10.04%

-3.35%

-3

DRV

-3.70%

-1.18%

-0.39%

-43.57%

-2.26%

-0.75%

ARCA Gold Miners

1

GDX

9.33%

0.00%

0.00%

66.68%

0.00%

0.00%

3

NUGT

23.07%

-4.92%

-1.64%

104.67%

-95.37%

-31.79%

-3

DUST

-32.47%

-4.48%

-1.49%

-95.49%

104.55%

34.85%

MSCI Emerging

1

EEM

3.34%

0.00%

0.00%

27.94%

0.00%

0.00%

3

EDC

9.08%

-0.94%

-0.31%

77.31%

-6.51%

-2.17%

-3

EDZ

-10.40%

-0.38%

-0.13%

-64.52%

19.30%

6.43%

Gold spot

1

GLD

2.79%

0.00%

0.00%

8.78%

0.00%

0.00%

3

UGLD

7.37%

-1.00%

-0.33%

14.92%

-11.42%

-3.81%

-3

DGLD

-8.69%

-0.32%

-0.11%

-32.87%

-6.53%

-2.18%

Silver spot

1

SLV

-1.73%

0.00%

0.00%

17.94%

0.00%

0.00%

3

USLV

-8.32%

-3.13%

-1.04%

26.12%

-27.70%

-9.23%

-3

DSLV

1.52%

-3.67%

-1.22%

-58.22%

-4.40%

-1.47%

Wells Fargo BDC

1

BDCS

3.24%

0.00%

0.00%

35.20%

0.00%

0.00%

2

BDCL

5.79%

-0.69%

-0.35%

79.88%

9.48%

4.74%

S&P Div. Aristocrats

1

SDY

-0.60%

0.00%

0.00%

28.63%

0.00%

0.00%

2

SDYL

-1.45%

-0.25%

-0.13%

62.13%

4.87%

2.44%

S&P Biotech Select

1

XBI

5.77%

0.00%

0.00%

18.12%

0.00%

0.00%

3

LABU

15.30%

-2.01%

-0.67%

3.81%

-50.55%

-16.85%

-3

LABD

-19.65%

-2.34%

-0.78%

-76.56%

-22.20%

-7.40%

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

In 1 month:

  • The 2 worst decays of the month are in gold miners, both long and short (NUGT, DUST), due to high volatility in this industry. The leveraged silver ETFs USLV and DSLV are just behind in the worst monthly drift ranking.
  • The highest positive drift is in the short Nasdaq 100 ETF (NASDAQ:SQQQ) in a 10% loss. However, this drift was very moderate.

In 1 year:

  • In the yearly data, the worst decays are in NUGT (long miners) and LABU (long biotechnology). Continued whipsaw in these industries have resulted in a high beta-slippage.
  • The highest positive drift is in DUST (short miners) in an asymptotic loss: it went down 95% in one year. Positive drifts in large losses also happened in short energy (NYSEARCA:ERY) and short Russell 2000 (NYSEARCA:TZA).
  • Hedging a stock portfolio with a long position in SPXU has involved a significant positive drift, due to a trending market with limited volatility. It means that hedging a portfolio with a long position in SPXU was not only cheap, it has given an excess return over hedging with a short position in SPY or S&P 500 futures. I have been using SDS and SPXU to hedge my Market Neutral Portfolio in 2016, and have been using exclusively SPXU for more than 6 months. Things may be different in 2017 depending on market conditions, and more specifically on daily return volatility.

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

If you like this, click "follow" at the top to be notified of my dashboard monthly updates.

Data provided by portfolio123 (this is a partner link giving you an extended period of free trial. I may receive a fee if you buy later a paid subscription, at no additional cost to you).

Disclosure: I am/we are long SPY, 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: Long SPXU to hedge a stock portfolio, long SPY in an ETF model based on my risk indicator MTS10.

About this article:

Expand
Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here