I have been researching leveraged etfs extensively lately and I am having trouble seeing the "catch". All I have determined is that, yes, they are more risky, but the return is higher, similar to any other investment we consider. If your time frame is long enough, these funds should come out well, well, well ahead.
Yes, I understand the term volatility drag, but, to me, this argument seemed invalid to me right off the bat. Initially I thought if leverages >1 returns worse returns due to "volatility drag", does leverages <1 mean better returns due to less "volatility drag"? Does this me if we leverage the S&P 500 less (lets say our by 0.5) we achieve high returns? Obviously not. We just see that the investment is safer. The article below is the only one that I can find that lays the math out clearly and I have done my own analysis on the S&P 500 using Yahoo!'s
daily prices since 1950 and I have determined the long you hold them (leveraged etfs) the
more likely you are to beat returns of just the index.
http://ddnum.com/articles/leveragedETFs.phpSomeone please, please, please enlighten me. I know there is something I am probably missing. I just do not know what. I am truly curious whether this is a risk/return thing or they are truly too good to be true.
Also, in my post here, I am only trying to dismiss (or rather understand) the idea of "volatility drag". I made no note on tax implications and other things that cut into returns. Please share so I can be learned up. Thanks :)