After the close of trading on Friday BlackRock Inc (NYSE:BLK). will replace Genzyme Corp (NASDAQ:GENZ). in the S&P 500 index (SNP:^GSPC). S&P is making the change because biotech company Genzyme announced last month that it would be taken private for $20.1 billion by Read more…
If you’re not using a leveraged or inverse fund these days, your chances of owning a top-performing ETF is greatly reduced.
On the other hand, if you do own a leveraged or inverse ETF, that doesn’t guarantee a winning hand. In fact, it might ensure just the opposite.
With leverage, if your ETFs haven’t made any of the “best” lists lately, chances are you’re going to wind up a big-time loser.
In the world of highly charged ETFs that provide 200% or even 300% leverage of their underlying indexes, few performance numbers fall in between the cracks. It’s an all-or-nothing game.
For example, if you’d bought the Rydex Inverse 2x S&P 500 ETF (NYSE: RSW) one year ago today, you would’ve gained more than 40% by now. If you’d bought the ProShares Ultra S&P 500 ETF (NYSE: SSO) in that same period, you would’ve lost 60%-plus.
The only real pattern showing up since the onslaught of leveraged and inverse ETFs on the market is that leaders will more likely than not come from one of those two categories. Whether it’s one or the other is dependent, of course, on the particular cycle at the time.
So how can you hope to own a real ETF winner without juicing up your portfolio these days?
It’s easier than you think. And best of all, you really don’t need 2x or 3x ability to be a top performer. In fact, it’s probably counterproductive for most long-term investors to own a leveraged ETF.