저자: Nanalyze채널진행자 · 외국인
요약 보기
레버리지 ETF(TQQQ 등)는 일간 리셋과 변동성 드래그로 보유 기간이 길어지면 3배 수익을 보장하지 않으며, 고비용·거래상대방/유동성 위험이 있어 장기 보유에 부적합하다는 주장. 스윙트레이딩과 레버리지 인버스 헤지도 비효율적이며, 개인투자자는 피해야 한다고 강조.
다듬은 글
Nvidia returned over 20,000% in the past decade. So why not double that return to 40,000% with a 2x leveraged ETF? That's a question many investors are asking and the answer isn't so obvious. We avoid leveraged ETFs like those on offer from ProShares like the Plague. And today we'll tell you why. You'll find a hundred different opinions out there about leveraged ETFs.
But around here we're tenured finance professionals who deal in facts. And the fact is levered ETFs are a really bad idea. Let's start by looking at the largest levered ETF out there, the ProShares Ultra Pro QQQ, which trades under the ticker TQQQ. Now, ProShares is widely recognized as the leader in leveraged and inverse ETF strategy.
So, an inverse strategy simply moves in the exact opposite direction as the index or stock that it's tracking. So, ProShares has been offering these products since 2006. About $65 million in fees per year from their franchise is quite a respectable amount, placing them in 12th place when it comes to the largest ETF providers out there, measured by assets under management or AUM.
Now, upwards of half their AUMUum is in levered ETFs. And here you can see the largest there at the top, the TQQQ. This generates about $180 million in fees. Now, it's important when you look at the description to pay attention to the verbiage here. They talk about offering three times the daily performance of the NASDAQ 100 index.
So, it only looks to provide three times the daily performance and it resets every single day. So, recently they celebrated the 15th year anniversary of this largest leveraged ETF out there. And when you look at the time frame that this ETF has been operating under here, you can see the performance of their underlying index that they're trying to show three times daily return for.
And you see that largely this has been what we often call the longest bull market ever. However, there was a bit of a reset there. You can see that's pointed to on this chart. But the general trajectory over the past 15 years that this ETF has been in operation has largely been moving upwards. And of course, when we look at returns, we see that it's indeed shown much better performance than the underlying index.
But it's always sunshine and butterflies until the music stops. And it's very important to understand the mechanics of any asset that you're invested in. The ProShares ETF seeks daily investment results that correspond to before fees and expenses, three times the daily performance of its underlying benchmark.
It's very important to note that expense ratios are the number one predictor of performance and those add up over time. So, this is a very expensive ETF and also the mechanisms that they're operating to offer this 3X drive a lot of transaction costs. So, in their collateral, they say something very interesting.
While the fund has a daily investment objective, you may hold fund shares for longer than one day. The exception to the use case for this ETF and they say for any holding period other than a day, your return may be higher or lower than the daily target and these differences will be significant. So the biggest takeaway for most investors looking at these products is that these funds are not meant to provide 3x return for any time period except a single day.
And that misunderstanding is so frequent that the SEC actually issued an investor bulletin about leveraged and inverse ETFs stating here these are specialized products with extra risks for buy and hold investors. They say, "We believe investors may be confused about the performance objectives of leveraged and inverse exchange traded ETFs." So now there's no confusion around that.
I think Grock says it best. It says, "In essence, leveraged ETFs aren't bad because they never outperform. They're bad because their outperformance is fleeting, situational, and comes with traps." And they cite here volatility decay. We're going to talk about that. timing risk of course when you decide to enter this particular ETF because of that extreme volatility and of course the high cost that we talk about.
They said the index itself or a plain vanilla ETF beats the leverage version over time with far less headache. If you can't stomach seeing half or more of your money evaporate very quickly, don't even think about buying into this volatility. And I think that more experienced investors understand how underrated sleeping well at night is.
What you're going to see is that plenty of investors have been completely wiped out on these products and they will continue to be wiped out. This article by Morning Star is quite good. It's titled, "Can leveraged ETFs benefit your portfolio?" It refers to here a litany of leveraged ETFs that closed in 2020 as they amplified extreme market losses.
that was the Rona if you recall and wiped themselves out and consequently investors that were holding them. They say those that managed to stay open through March 2020 had the pleasure of crashing and burning again in 2022 after eyepopping gains in 2021. What makes these ETFs such a bad investment choice?
At the core of their woes, says Morning Star, these funds suffer from a phenomenon called volatility drag. So here's an example. Let's say that you have an index that starts at 100, drops 10% to 90, then rises 11.1% back to 100. So, it's back where it started. You have a 0% net change. Now, you do that same math with a 3x ETF.
So, it would fall 30% to 70 on day one and then gain 33.3%. So, that's 3* 11.1 to 93.31 on day two. So, you're left with the leverage ETF at a loss of 6.69% despite the index breaking even. Now, the bigger the swings in the market, the worse this drag gets, turning potential outperformance into a net loss.
And they cite in that article the performance of the growth of the oldest daily two times leveraged S&P 500 fund that's still around. And you can see how it depends on when you're looking at the performance as to whether it's outperforming or underperforming. And that's as you would expect. Now, in addition to things like volatility, drag or decay, you also have external risk factors unique to these investment vehicles.
So, you have counterparty risk. That's if a bank that's providing swap contracts to that leveraged ETF fails and that fund could face severe losses. Here you can see various swaps with different banks that this TQQQ holds. You have liquidity risk. This one's particularly interesting. So during market turmoil, derivatives can become much harder to trade and that forces funds to accept unfavorable prices.
Right? So whenever there's a crisis, the entire environment changes and oftentimes these are Rumsfeld's unknown unknowns. You have interconnection risk. We've seen this before. Those of us who have been in the market long enough to have seen proper turmoil, when the derivatives market seizes up, it creates a domino effect and this can create absolute disaster for funds.
So this piece by PWL Capital, I think also summarizes some other issues. It seems intuitive to investors to say, well, if you believe in the long-term performance of equity markets, why wouldn't you leverage to invest in equities and amplify those long-term returns? Well, there's plenty of reasons why you shouldn't.
Psychologically, most investors are not able to handle the massive negative returns that come from leverage, and it can get quite dangerous. So, with a leveraged portfolio, in an equity downturn, you're likely to become undercolateralized at some point. And that holds true if you're leveraged yourself on a margin account or if you're invested in a leveraged vehicle.
If you had a proper, let's say, 60/40 portfolio where you had some exposure to bonds, what you could then do is use that opportunity to rebalance, exit your bonds, and buy equities when they're quite cheap. So that bond allocation becomes a source of cash to buy more equities when they're down. You can't do that when you're highly leveraged.
And due to the sequence of returns being so important in long-term investing, big negative years will end up dragging down the performance of leveraged ETFs. And honestly, we haven't seen any big negative years in a long time since the 2008 2009 financial crisis to be honest. So the takeaways here, holding leveraged ETFs for more than a day is a very bad idea.
That whole two and three times return thing is no longer applicable when you start to go outside a single day. You have that daily reset. Holding them for a single day is a bad idea. So you're not Gordon Gecko. And the longer you try to be Gordon Gecko, the worse the odds get that you're going to be able to outperform the market.
95% of investment professionals can't do that in the long term. Don't think that you're going to be able to do that with a weekend of research. Now, using short ETFs as a hedge is a bad idea. That's because you're not going to be able to time the market successfully. It will just create a drag on your returns.
Using leveraged short ETFs is an even worse idea. Swing trading is for suckers. We did a piece on this topic that has that exact name and it's for people that sell courses that try to convince you that it isn't. One thing people will point to is the growth of levered ETFs and it's been quite remarkable.
Here you can see this chart showing that growth over time. That growth of leveraged ETFs must mean they're good for something, right? Well, when you're trying to look at whether or not a particular new and exciting investment product is good, looking at past performance in the and I've crossed out longest bull market ever because technically it isn't.
But let's say the absence of real bad times isn't a good idea. Some finat saying they've made a bunch of money on a levered ETF. That's not proof of anything. Nor is a bunch of Redditors trying to present some convincing story that we often see. Some YouTuber had a popular video and said XYZ. That isn't proof of anything either.
Now, I spent a decade working at one of the most elite firms on Wall Street and nearly a decade in academia. And what I learned is this. There's always someone who spent more time on a problem than you have. Most questions out there have been sufficiently answered. So, what do experts say about the popularity of these levered ETFs?
Well, it's very interesting. So this particular article here digs into that and it talks about alternatives to these products. So why has AUM in levered ETFs ballooned according to Morgan Stanley? Well, many of the desired effects of these ETFs can be replicated by longerterm investors. Let's say institutional investors who are sophisticated enough to be doing this sort of thing.
They can use ETNs, futures, or even options strategies to have the same effects. They don't need to pay these ETF managers 1% for the privilege. Now, they say the popularity of these levered ETFs can be attributed to a number of things. An imposed restriction perhaps such as custodians not allowing options to be traded in an IRA.
Very interesting, right? So, people that can't do that, that want that added risk or added leverage, then turn to these ETFs when they really shouldn't be doing that. They talk about unavailability of appropriate option contracts. I hardly think that's a problem for retail investors. And this last reason, I think certainly the most important one, a fundamental misunderstanding of the risks or payoffs.
So that's driving a lot of the popularity. So be forewarned. This is a poor man's substitute for better options that exist for leveraging market returns if you so choose to do that. And I like this quote from Buffett on margin. He says, "If you're smart, you don't need it. And if you're dumb, you shouldn't be using it." And that pretty much says it.
Now, I'm certain that we're likely to get lots of comments about my gains. People will say, "Well, I bought this at this time and had this result." Well, with all due respect, nobody really cares about your portfolio. We're interested in discussing the mechanics of these products. Trading is not a viable path to wealth.
I don't care what Maria Sanchez on Telegram says, it isn't. You will not create wealth trading. And people who believe this will have their asses handed to them. Wall Street's not in the business of creating wealth. They want you to be transacting. So firms like Robin Hood actually make most of their money on investors dabbling in the most risky assets out there.
So pay very close attention to the sorts of products that you're being pushed towards. The literature is conclusive. There are better substitutes for leveraged ETFs and they're not something that retail investors should be dabbling in. Now, be very careful out there because this $180 million franchise or upwards of $300 million if you count all their ETFs is well worth protecting and trying to grow.
Now, there will be people out there who attack those who present facts and I found it very odd on our YieldMax video some very suspicious comments. So, we would have a fair number of people coming by with the same format of message. It would be, well, I agree with you, right? because they can't dispute facts.
But hear me out here. And then they would cite, "My friend had some XYZ experience." Right? Again, no one cares about your man bites dog stories, right? The facts are that these are investment vehicles that do investors no favors. The only people laughing all the way to the bank are the operators of these vehicles.
And I think those of you who are tempted by the 80% yields on offer from YieldMax, and who wouldn't be tempted by that, ought to watch this next video. It's quite good. Thanks so much for taking the time to watch this today.
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