Volatility Matters

Leveraged ETFs seek daily goals, which means that the returns of the ETFs over time should not be expected to be a multiple of the cumulative return off the benchmark for the longer period.

Different volatility levels of a fund’s benchmark index can impact the returns of leveraged ETFs for periods greater than a day.

The Bottom Line – Monitor and act when necessary. Daily rebalancing funds are not meant to be held, unmonitored for long periods. If you intend to hold leveraged ETFs for periods greater than a day, you must always watch them closely.

  • During highly volatile periods for a fund’s benchmark index, you will need to adjust your positions frequently to maintain constant exposure levels.
  • During periods of lower volatility for the benchmark index, you should continue to monitor, but position adjustments will likely be needed less frequently.

If you don’t have the resources, time or inclination to constantly monitor and manage your positions, leveraged ETFs are not for you. The Funds are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, the consequence of seeking daily leveraged investment results and intend to actively monitor and managed their investments.

 

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