Holding 3x etf long term

[srinir]

Lets say the short interest rate is 6% each while a lot of 3x etf rate is over 10%, your Portfolio2 annual cost is 18%. Portfolio1, 3 doesnt need to rebalance, so Portfolio2 would be a lot of ask/bid cost for each re balance in and out. So together is like 20%. It looks like you need 3 times the money for Portfolio2 to product your result in graph.

Thanks.
I looked up short rates at IB. They are much lower.

So for Portfolio2: It is about (2.09% + 2.16%)*3 (borrow rate+margin rate) =12.75%. If i add transaction cost 2%, total cost will be approximately 15% annually.

I figured out to add an additional cost in portfoliovisualizer (Basically add cost of advisor fee). Using 15% annual cost, final balance is $123,303. So it is certainly much better than straightup UPRO, but not better than using future

 

[JackRab]

@srinir, have you taken dividends into account? SPY pays out regular dividends... on different dates that S&P500... And how do the leveraged ETFs treat dividend ex-dates in S&P500?

 

[GloriaBrown]

Thanks.
I looked up short rates at IB. They are much lower.
View attachment 178976

So for Portfolio2: It is about (2.09% + 2.16%)*3 (borrow rate+margin rate) =12.75%. If i add transaction cost 2%, total cost will be approximately 15% annually.

I figured out to add an additional cost in portfoliovisualizer (Basically add cost of advisor fee). Using 15% annual cost, final balance is $123,303. So it is certainly much better than straightup UPRO, but not better than using future

Thx for sharing. The result would be very different if you rebalance base on diffferent timing or condition. The cost of ask bid rebalance can be high. The ib short interest rate is different everyday so almost impossible to simulate. I monitor all 3x oil etf and the borrow short cost change a lot sometimes and just run out of stocks to short sometimes.

 

[srinir]

@srinir, have you taken dividends into account? SPY pays out regular dividends... on different dates that S&P500... And how do the leveraged ETFs treat dividend ex-dates in S&P500?

Portfoliovisualizer does take into account dividends. It is easy to test it out.
Portfolio 1: VFINX (SP500 vanguard mutual fund)
Portfolio 2: SPY

These are the returns from Jan 1994. Minor difference between the two is entirely because of difference in expense ratio (SPY is more expensive than VFINX).

Regarding question of leveraged ETF and dividends, ETF provider enters into "Total return SWAP" with financial institutions. So dividends should be taken into consideration in that swap.

 

[srinir]

Thx for sharing. The result would be very different if you rebalance base on diffferent timing or condition. The cost of ask bid rebalance can be high. The ib short interest rate is different everyday so almost impossible to simulate. I monitor all 3x oil etf and the borrow short cost change a lot sometimes and just run out of stocks to short sometimes.

Agree. If the levered ETF can not beat out Futures in favorable conditions like today, it will be much more difficult during the time of stress when short rates, margin rates and spreads are all higher. Volatility drag which is higher during the time of stress by itself can not mitigate its short comings.

For a retail investor it is very difficult to beat out the embedded interest rates in the futures and broad index options.

Thanks for your input.

 

[highrisk]

Thanks you all for your replies

Based on the replies - Futures appears to be a viable alternative to 3x etf.
Though, i have concerns for long term hold in terms of contract rollover(does not appear automated, therefore requires monitoring) and unlimited liability (if the stop loss and margin call doesnt activate in flash crash etc).
Any ideas to mitigate this.

On a side note - one benefit of daily compounding of 3x is that the returns in gently moving up markets are significantly higher than 3x the underlying index. Not sure if futures offer that benefit- but i guess that comes with downside of volatility drag and amplified down maket as well. I still feel this is an advantage of daily compounding especially if one can manage to exit on downmarket (and if volatility drag is not too bad)

 

[themickey]

SHUT YOUR PIE HOLE! Just run the charts. The "decay" is small and not all that fast compared to the leveraged rise in prices. GEEZUS CHRIST! How dense can you be?

You've obviously already listened to other dumbasses who pontificate, "its always wrong to play a leveraged ETF", so why bother to ask the question? With that conclusion, YOU'RE TOTALLY FULL OF SHIT! The charts tell the tale. You're obviously an IDIOT!!

The issue is not, "can YOU cope with the volatility of leverage"? Not whether doing so correctly is a benefit.

LOL