Post by ira85 on Jun 27, 2009 23:24:26 GMT -5
An observation. I checked year to date performance for 7 pairs of Direxion 3x leveraged ETF's today, using Yahoo Finance as the data source. Here's what I found. Percentage gain or loss rounded to nearest full percent.
YTD
FAZ Financial Bear -42 %
FAS Financial Bull -78 %
EDZ Emerging Mkt Bear -40 %
EDC Emerging Mkt Bull -22 %
TZA Small Cap Bear + 7 %
TNA Small Cap Bull -49 %
DPK Developing Mkt Bear +21 %
DZK Developing Mkt Bull -50 %
TYP Technology Bear -36 %
TYH Technology Bull - 1 %
BGZ Large Cap Bear + 8 %
BGU Large Cap Bull -38 %
ERY Energy Bear + 1 %
ERX Energy Bull -41 %
The average YTD change for the 7 bear ETF's is -11.6 %
The average YTD change for the 7 bull ETF's is -39.9 %
At first glance we might expect these funds to have mirror image returns. But they obviously do not.
I'm not positive what the reason is for the predominantly negative returns for these funds over the last (nearly) six months. But I think it has to do with the erosion that occurs with losses. When a stock loses 50% it doesn't get back to even when it gains 50%. It takes a 100% gain to get back a 50% loss. These triple leverage funds magnify that problem. So whenever these funds have a loss it is devastating to long term performance.
It seems they are only useful for a short term trading, catching a move and then getting out before giving much back. To be successful one would have to enter when the probabllity of being on the right side of the trade is high and then selling at the right time. You'd have to have the trend AND the timing right to win. Sounds tricky to me.
YTD
FAZ Financial Bear -42 %
FAS Financial Bull -78 %
EDZ Emerging Mkt Bear -40 %
EDC Emerging Mkt Bull -22 %
TZA Small Cap Bear + 7 %
TNA Small Cap Bull -49 %
DPK Developing Mkt Bear +21 %
DZK Developing Mkt Bull -50 %
TYP Technology Bear -36 %
TYH Technology Bull - 1 %
BGZ Large Cap Bear + 8 %
BGU Large Cap Bull -38 %
ERY Energy Bear + 1 %
ERX Energy Bull -41 %
The average YTD change for the 7 bear ETF's is -11.6 %
The average YTD change for the 7 bull ETF's is -39.9 %
At first glance we might expect these funds to have mirror image returns. But they obviously do not.
I'm not positive what the reason is for the predominantly negative returns for these funds over the last (nearly) six months. But I think it has to do with the erosion that occurs with losses. When a stock loses 50% it doesn't get back to even when it gains 50%. It takes a 100% gain to get back a 50% loss. These triple leverage funds magnify that problem. So whenever these funds have a loss it is devastating to long term performance.
It seems they are only useful for a short term trading, catching a move and then getting out before giving much back. To be successful one would have to enter when the probabllity of being on the right side of the trade is high and then selling at the right time. You'd have to have the trend AND the timing right to win. Sounds tricky to me.
