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.


Update Backtest

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.


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.


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).

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



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.

Update Backtest


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