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Simulating Historical Returns Of Leveraged ETFs

Nov. 01, 2017 5:32 PM ETUPRO, TMF, VFINX, VUSTX46 Comments
Greg Hudson profile picture
Greg Hudson


  • Everyone hates leveraged ETFs over the long term.
  • But few have actually simulated their historical returns.
  • I have, and I'll show you how and what I've learned.

In my last article, I used a 30+ year historical simulation to demonstrate that leveraged ETFs can perform well over the long term, if they’re part of a balanced portfolio. For simplicity’s sake, I showed the impressive results of a simulated 50/50 mix of the ProShares UltraPro S&P 500 ETF (UPRO) and Direxion Daily 30-Year Treasury Bull 3x Shares ETF (TMF) (tl;dr 26% annual return over 30+ years with 65% max drawdown).

For whatever reason, I can’t find anyone else simulating the returns of leveraged ETFs over long time horizons. Most authors just look at their actual performance since inception, and the oldest leveraged ETFs started after the financial crisis, so everything looks rosy. Every blue moon, I find someone who has gone further back (cheers to Double Digit Numerics and RHS Financial!), but they are few and far between.

I’ve spent way too much time simulating the historical performance of a portfolio of leveraged ETFs, which will be the basis of further posts on the subject, but first I’d like to just lay out my approach so that no one is taking me on faith (also I'll offer a bit of candy at the end of this medicine). Also, it’s not that hard, and others should actually look at the historical facts before either decrying leveraged ETFs as unsuitable for the long term based on thought experiments and cherry-picked data or pumping them based on unsustainable performance during a bull market.

Let’s take the example (from my previous article) of simulating a 50/50 portfolio of UPRO and TMF. Each of these seek daily investment results, before fees and expenses, of 300% of the performance of their underlying indices (the S&P 500 and the ICE Treasury 20+ Year Bond index, respectively). Those fees and expenses are .94% and 1.05% respectively, although it’s not entirely clear if those are just management fees or include interest

This article was written by

Greg Hudson profile picture
I am now employed in the industry (in a non-investment role), so I won't be publishing articles to Seeking Alpha and may not respond to comments. My apologies!Individual investor focused on time-tested passive portfolio allocation strategies. MBA data geek, formerly in a non-investment role at Bridgewater Associates. Risk parity principles make sense to me, but I follow the data more than theory in a search for high long-term returns with medium risk.

Analyst’s Disclosure: I am/we are long UPRO, TMF. 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.

Historical returns are not predictive of future returns. My simulations use data from Yahoo! Finance, which contains errors.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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