3 ms·

I think it's unfair to claim "built-in decay" is unique to leveraged ETFs. This happens with all financial instruments: stocks, funds, ETFs, futures, options, e

I think it's unfair to claim "built-in decay" is unique to leveraged ETFs. This happens with all financial instruments: stocks, funds, ETFs, futures, options, etc. Any price that goes up X% and then down X%, or vice versa, ends up lower than the starting point. For any instrument. The only difference with the leveraged instruments is the corresponding loss is greater. But that's the whole point of using leverage -- the gain is greater, too.

byrneseyeview 17y ago
No, it's completely fair. Leveraged ETFs rebalance in such a way that the losses compound faster than the gains. If they did no rebalancing (i.e. started out with $100M in cash and $200M in debt, and kept the $200M no matter what the equity price did) the decay wouldn't happen.