Leveraged ETFs for Beginners

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4. Daily returns vs long term returns

An important aspect of leveraged ETFs is the way they track an index. In order to generate returns equal to a specific multiplier of the index return, the fund must be rebalanced each day. But this means the returns will only be equal, or very close, to the multiplier of the index returns each day. Over longer periods, the amplified returns will compound.

During strong bull markets, positive returns will compound, and the total return may be greater than expected. However, during bear markets and volatile periods, the return is likely to be significantly worse than expected.

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