Quantifying 3X Leverage ETF Performance vs. Target Index (FAS, FAZ, BGU, BGZ, ERX, ERY)
“Direxion has issued its semi-annual report for its triple leverage ETF holders and there are some interesting revelations here. While there are many others covered, we wanted to demonstrate some of the differences among the Direxion Daily Financial Bull 3X Shares (NYSE: FAS), Direxion Daily Financial Bear 3X Shares (NYSE: FAZ), Direxion Daily Large Cap Bull 3X Shares (NYSE: BGU), Direxion Daily Large Cap Bear 3X Shares (NYSE: BGZ), Direxion Daily Energy Bull 3X Shares (NYSE: ERX), and the Direxion Daily Energy Bear 3X Shares (NYSE: ERY),” Jon C. Ogg from 247wallst.com reports.
“The report is for the period of November 5, 2008 to April 30, 2009, and it probably wasn’t needed to say it but Direxion noted that the first four months of the period were marked by severe distress in the economy and much more so in the financial sector. Technically, none of this is new if you have looked at the documents before. But many investors and traders alike have either chosen to forget or just didn’t do any homework and missed the notion that triple-leverage ETFs do not move tick for tick for the triple-long and triple-short. What is interesting is that Direxion is essentially spelling out that the returns on these instruments vary and do not necessarily correlate through time with the move of the underlying index,” Ogg reports.
Ogg continues to report, “An excerpt says it all: Particularly in periods of heightened volatility, the ETFs should be used by investors as short-term trading vehicles. As a consequence, we do not believe that investors should buy and hold the funds.”
It also noted that investors should understand the daily performance and the performance through time and stated again that the triple-leverage ETFs are not suitable for all investors and should be utilized only by sophisticated investors who:
•understand leverage risk,
•understand the consequences of seeking daily leveraged investment results,
•and intend to actively monitor and manage their investments.
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