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Buying and holding a leveraged S&P 500 ETF such as UPRO

I understand that buying and holding a leveraged S&P 500 ETF such as UPRO, due to compounding returns, leveraged ETF values tend to decay over time relative to non-leveraged ETFs in volatile markets, but everytime a back test buy and hold strategy for any leveraged etf the return are impressive:

UPRO from 2011 + 505,58%

TQQQ from March 2010 + 948%

even including 2008 bear market

SSO  from July 2006 +86,33%

while SPY return since Dec 2006 is +50%

So what I m missing? It is very clear that lavaraged ETF have a great drawdown and have big drops, but it still seems worth the risk if in a bull market I can make a 500% return.

Please any advice is welcome.

 

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I can't comment on the calculations or numbers provided, but certainly a lot of your result will depend on the entry/exit timing, which with these ETFs necessarily correspond to attempting market timing in general (a tricky business). With an unlucky entry, you will be looking at a horrendous drawdown before it (hopefully eventually) corrects.

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Also, beware of the profitability of leveraged ETFs is impacted by rates, since you're implicitly borrowing money. FED sponsors your wealth in current environment.

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I have backtested a simple strategy shorting both the inverse leveraged ETF

of SP500 and 20 year treasury and got decent returns.



This strategy takes advantage of the time decay design flaw. I cover and

re-short once per month to compensate for the limitation of shorts where

the returns are capped. Covering and re-shorting should increase returns in

shorting downtrends significantly.



It should work well during bull markets where bonds are inversely

correlated to stocks during drawdowns ( which tend to have been the case

over the past 7 years).
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I m not a big fan of shorting anything that is leveraged, better go long on inverse ETF, I m not a big fan of margin call

 

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fyi, borrow fees on leveraged ETFs are high - in line with decay - so shorting is expensive. Be sure to factor that in to your backtest since its a significant drag on performance. To make matter worse, the interest on the short sale proceeds are zip.
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