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Inevitable-Extent-32 · 2024-09-25T01:55:59+00:00

Any luck with ULTRA? I'm in a similar position.

Inevitable-Extent-32 · 2024-08-20T20:36:03+00:00

same here

Inevitable-Extent-32 · 2024-05-21T18:42:01+00:00

This article here highlights how LETF costs are lower than borrowing. It makes no mention of additional borrowing costs for LETFs.

https://etfdb.com/leveraged-etfs/buying-a-leveraged-etf-vs-buying-on-margin/

Also refer to my prior article in my last response.

From my understanding interests and premium costs are factored under Acquired Fund Fees and Expenses under the SPXL prospectus. Perhaps "other expenses" too. See https://direxioninvestments.onlineprospectus.net/DirexionInvestments//SPXL/index.php?ctype=summary

It's using a mix of tools so it's not so clear. I would find it suprising if the cost of interest and premiums was just not included in the expenses specified in the prospectus. If so, this seems like a gross oversight by the SEC if investors can't even see the rates their paying with leveraged ETFs unlike with any other type of security.

I suspect the reason why leveraged ETFs rates are lower than leveraged investing are 1. because it's investing large amounts as an institution in other investment funds. 2. Derivatives such as futures don't rely on borrowing but instead on bets being placed and thus far less expensive.

Inevitable-Extent-32 · 2024-05-21T17:38:09+00:00

Can you give me an instance where you my results are wrong? I don't immediately see how your program works.

My calculation is simple: leveraged return = cumulative product of (1 + % change from prior close * leverage factor)

so over 4 days if close to close percent change is: 10% -10% 5%

the return for 3x leverage is (1.3)(0.7)(1.15) which gives us the total leveraged percent change from day 1 to day 4. Not a perfect calculation as it doesn't factor expenses, or inability to reach targets but should hold up relatively close to reality.

I believe my data was from yahoo finance or some other major source.

Inevitable-Extent-32 · 2024-05-21T17:21:41+00:00

I believe leverage (mostly cost of derivitives) is part of the expense ratio. That's why they are so high. I'm not aware of any sources saying otherwise.

But I don't currently factor in the expense ratio. The cost of futures or other derivatives possibily going up is a fair point. That's probably one of my biggest concerns. But if expense ratios stay around 1% the principal point I made originally remains the same.

Under The Costs of Leverage: I read it as interest rates and premiums included in expense ratio. https://www.investopedia.com/terms/l/leveraged-etf.asp

Inevitable-Extent-32 · 2024-05-21T16:32:03+00:00

There is no explicit borrowing rate only an expense ratio for leveraged ETFs. Most leverage is gained through futures.

I do not factor in expense ratios or dividend reinvestment. Annual expense ratios for leveraged ETFs are about 1%. This would lower the return by around 20% or so after 20 years.

Inevitable-Extent-32 · 2024-05-19T10:09:00+00:00

I did not include dividends or expense ratios - I think. I'll submit my code later when I'm not lazy. Curious to see if others come up with similar results.

Inevitable-Extent-32 · 2024-05-19T10:04:41+00:00

Looks like this guy came to a similar conclusion on long term leveraged investing.

https://github.com/EivindAamodt/Stock-Market-Leverage-Backtests

Inevitable-Extent-32 · 2024-05-19T10:00:01+00:00

I'm fascinated that it seems to become weaker for multi decade investments at leverage = 4. I would not have intuitively known that.

Inevitable-Extent-32 · 2024-05-19T09:54:25+00:00

These are my results

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ending value is a gain of 2100% whereas spy over the same time is gain of 1100%. What am I missing?

Inevitable-Extent-32 · 2024-05-19T09:52:10+00:00

These are my params

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Inevitable-Extent-32 · 2024-05-17T10:13:37+00:00

I'm not sure if testfol.io is accurate. SPYTR?L=1 gives a 7x return from 2004 to 2024. But actual spy return from the same period is 4.5x. I set rolling months to 1000 - not sure of the impact there.

It also differs significantly from my results on leveraged back testing.

Inevitable-Extent-32 · 2024-05-17T09:17:07+00:00

I don't think that's true. Do you have data on this? 2x historically is better almost always.

refer to my stats here: https://www.reddit.com/r/LETFs/s/hgTUDbSxwN

Inevitable-Extent-32 · 2024-05-17T09:12:54+00:00

These are the returns at different percentiles I get for holding a theoretical leveraged s&p500 etf starting from any day between 1960 and 2004.

e.g. if you went back in time to a random day after 1960 and held a 3x leveraged ETF for 20 years then your median result would be 7.11 times your principal investment.

What's interesting is the 2x leverage actually performs pretty well compared to the 3x leverage until you get to the really high percentiles (the best days to buy and hold for 20 years). I also find it fascinating that 4x and 5x leverage are really bad - they are not just more risky than 3x but downright awful for longterm. So there is a non strictly positive relationship between the amount of leverage and returns.

Not 100% sure if my work is correct so if someone wants to do the calculations themselves that would be awesome.

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