The Myth: 3x ETFs good only for short term...

[MoneyMagnet]

I've often heard/read the conventional wisdom that leveraged ETFs (especially 3x leveraged) are only good for short term trading; that costs and variances and what-not will make them losers over the long term. I've seen absolutely no evidence that this is actually true.

To test it, I took the last 10 years of daily data for SPY (1x) and compared it to the same time span for UPRO (3x). If you bought SPY 10 years ago and held it to this day, you would have made a respectable 344.7% gain. However, doing the same with UPRO would have yielded a whopping 2,663.7% gain. That's more than 7x the SPY. And this is without compounding!

So, if anyone feels that leveraged ETFs are in fact not good for the long term, please post your reasoning. It's going to take some powerful arguments to convince me!

 

[qwerty11]

True, but if you would take the last 13 or 14 years you get a totally different result...

 

[userque]

I've often heard/read the conventional wisdom that leveraged ETFs (especially 3x leveraged) are only good for short term trading; that costs and variances and what-not will make them losers over the long term. I've seen absolutely no evidence that this is actually true.

To test it, I took the last 10 years of daily data for SPY (1x) and compared it to the same time span for UPRO (3x). If you bought SPY 10 years ago and held it to this day, you would have made a respectable 344.7% gain. However, doing the same with UPRO would have yielded a whopping 2,663.7% gain. That's more than 7x the SPY. And this is without compounding!

So, if anyone feels that leveraged ETFs are in fact not good for the long term, please post your reasoning. It's going to take some powerful arguments to convince me!

This again?

They'll say, "YEAH BUT, IF YOU'D BOUGHT HERE, AND SOLD HERE, YOU'D LOST MONEY!"

News Flash: you can find buy/sell dates like that for every ... instrument ... ever ... created.

Ask them to show you an underlying bull run, where the bull eft failed; or an underlying bear run where the bear etf failed. Instead, they'll want to show you cherry-picked dates within periods of chop--trying to prove that |3x|<|x|.

 

[shatteredx]

I've often heard/read the conventional wisdom that leveraged ETFs (especially 3x leveraged) are only good for short term trading; that costs and variances and what-not will make them losers over the long term. I've seen absolutely no evidence that this is actually true.

To test it, I took the last 10 years of daily data for SPY (1x) and compared it to the same time span for UPRO (3x). If you bought SPY 10 years ago and held it to this day, you would have made a respectable 344.7% gain. However, doing the same with UPRO would have yielded a whopping 2,663.7% gain. That's more than 7x the SPY. And this is without compounding!

So, if anyone feels that leveraged ETFs are in fact not good for the long term, please post your reasoning. It's going to take some powerful arguments to convince me!

Yes, you're right that leveraged ETFs have done well over the past 20 years. Other people have already busted the myth that you can't hold them long term. There's a nice write-up here: http://www.ddnum.com/articles/leveragedETFs.php It shows that since 1885, the optimal leverage has been 2x (optimal leverage since 1950 has been 3x).

However:

1. If TQQQ had existed in 1999, it probably would have gone down very close to 0 during the dot com bubble.
2. Google "XIV" if you're not familiar with it already, it's a nice example of a leveraged ETF that blew up. To be fair, it was IMO extremely obvious that it would blow up.

I think some of the leveraged oil ETFs blew up last year too. Is it possible for the S&P to drop 33% in one day nowadays to trigger a blow up in UPRO? Are you willing to bet your entire brokerage account?

 

[Overnight]

...
2. Google "XIV" if you're not familiar with it already, it's a nice example of a leveraged ETF that blew up. To be fair, it was IMO extremely obvious that it would blow up.

Far as a I remember, XIV was an ETN, which apparently is not the same thing as an ETF.

Is it possible for the S&P to drop 33% in one day nowadays...

No. 20% max in one day.

 

[userque]

1. If TQQQ had existed in 1999, it probably would have gone down very close to 0 during the dot com bubble.

I think I understand what you're saying, but ...

Holding TQQQ in a downtrend would be bad.
Shorting QQQ during the dot com bubble rise would also be bad.

Are these realistic scenarios? Holding a 3x bull etf for over two years, during a downtrend, watching it go to zero?

Are we comparing the trading of etf's? Or are we saying, "what would happen is I pick a leveraged etf, and hold it forever, without ever switching sides?" Is that what we mean by "long term?" Never ever making a trade?

2. Google "XIV" if you're not familiar with it already, it's a nice example of a leveraged ETF that blew up. To be fair, it was IMO extremely obvious that it would blow up.

I think some of the leveraged oil ETFs blew up last year too. Is it possible for the S&P to drop 33% in one day nowadays to trigger a blow up in UPRO? Are you willing to bet your entire brokerage account?

This is more a matter of money management.

We recognize the risks associated with ETN's and individual stocks ... and adjust accordingly.

Is this a realistic scenario? putting 100% of an account into a leveraged etf, with no stops, without an intent to trade it, where statistics show it could blow up?

 

[deaddog]

So, if anyone feels that leveraged ETFs are in fact not good for the long term, please post your reasoning. It's going to take some powerful arguments to convince me!

But could you have stood the ride?

!
10 K worth of UPRO bought 10 years ago would have been worth about 170K in January 2020.
By the middle of march it was worth less than 45K a 70% drop.

HODL

 

[george_the_second]

So, if anyone feels that leveraged ETFs are in fact not good for the long term, please post your reasoning. It's going to take some powerful arguments to convince me!

UPRO hasn't seen a sustained market downturn like the 2000 or 2008.

If you want to see what agony looks like while underperforming the underlying index over multiple years, check out leveraged funds with longer time spans such as UOPIX or ULPIX. Browse their timelines compared to their underlying over different time intervals and see what their performance looks like.

 

[userque]

UPRO hasn't seen a sustained market downturn like the 2000 or 2008.

If you want to see what agony looks like while underperforming the underlying index over multiple years, check out leveraged funds with longer time spans such as UOPIX or ULPIX. Browse their timelines compared to their underlying over different time intervals and see what their performance looks like.

Those are mutual funds, no?

 

[george_the_second]

Yes. Annual expense ratios are a bit higher than UPRO or TQQQ (1.6% vs 1%), but it should still give a rough idea what a leveraged fund looks like under a longer downturn than what we've experienced in the last 10 years.