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>For example, if we purchased a 2x bull leveraged S&P 500 ETF such as SSO, we would choose an appropriate weight to cancel out the leverage, 0.5 in this case. I

>For example, if we purchased a 2x bull leveraged S&P 500 ETF such as SSO, we would choose an appropriate weight to cancel out the leverage, 0.5 in this case. If we kept the rest of the money in cash, the return of the portfolio would only be slightly worse than that of the S&P 500, due to the 0.90% expense ratio we pay. A 2x bull leveraged etf replicates daily moves. your long term return to expense expectations are completely off.

300bps 6y ago
You are exactly correct. So many people are buying these synthetic instruments without even reading the prospectus that clearly states in plain language what you said but they still buy them expecting > daily tracking. I’ve seen so many strategies that technology people come up with (including myself) that look great on paper but don’t take into account the prospectus or things like market conditions, counterparty risk, backwardation, contango, etc.
- atombender 6y ago
  Out of interest, what's your take on Hedgefundie's now-infamous UPRO/TMF risk parity portfolio [1], which is currently 55% UPRO, 45% TMF? [1] https://www.bogleheads.org/forum/viewtopic.php?f=10&t=288192 https://www.bogleheads.org/forum/viewtopic.php?f=10&t=288192
smabie 6y ago
You're right that 0.9% is a lot, but the expenses get absorbed by the bond yield. The total difference of return between 0.5*SSO and SPY over the ten year period (2010-01-01 and 2020-01-01) is 28%. Maybe you're right that that's more than "slightly" worse, I'll change the wording. Moreover, when doing at the historical returns, I do use UPRO, not just 3xSPY, so the expense ratio is included. It's not included in the chart that goes back to 2004, but I do mention that that one is synthetic and inaccurate.
- arkis22 6y ago
  I don't see 2020 in your graphs
  - smabie 6y ago
    Its not labeled on the axis. But the analysis is up to last Friday. It's also easy to see that the huge drop and rebound at the end of Coronavirus. The start and end date are also mentioned in the post. Edit: actually it's on all the graphs. https://cryptm.org/assets/iret.png https://cryptm.org/assets/iret.png
kelnos 6y ago
> > the return of the portfolio would only be slightly worse than that of the S&P 500 If you "know" that a particular portfolio will return less than another portfolio, why would you not choose the one that returns more?

300bps 6y ago

You are exactly correct. So many people are buying these synthetic instruments without even reading the prospectus that clearly states in plain language what you said but they still buy them expecting > daily tracking. I’ve seen so many strategies that technology people come up with (including myself) that look great on paper but don’t take into account the prospectus or things like market conditions, counterparty risk, backwardation, contango, etc.

atombender 6y ago
Out of interest, what's your take on Hedgefundie's now-infamous UPRO/TMF risk parity portfolio [1], which is currently 55% UPRO, 45% TMF? [1] https://www.bogleheads.org/forum/viewtopic.php?f=10&t=288192 https://www.bogleheads.org/forum/viewtopic.php?f=10&t=288192

smabie 6y ago

You're right that 0.9% is a lot, but the expenses get absorbed by the bond yield. The total difference of return between 0.5*SSO and SPY over the ten year period (2010-01-01 and 2020-01-01) is 28%. Maybe you're right that that's more than "slightly" worse, I'll change the wording. Moreover, when doing at the historical returns, I do use UPRO, not just 3xSPY, so the expense ratio is included. It's not included in the chart that goes back to 2004, but I do mention that that one is synthetic and inaccurate.

arkis22 6y ago
I don't see 2020 in your graphs
- smabie 6y ago
  Its not labeled on the axis. But the analysis is up to last Friday. It's also easy to see that the huge drop and rebound at the end of Coronavirus. The start and end date are also mentioned in the post. Edit: actually it's on all the graphs. https://cryptm.org/assets/iret.png https://cryptm.org/assets/iret.png

kelnos 6y ago

> > the return of the portfolio would only be slightly worse than that of the S&P 500 If you "know" that a particular portfolio will return less than another portfolio, why would you not choose the one that returns more?