An Empirical Investigation of the Performance of
Commodity-Based Leveraged ETFs

Abstract

The authors investigate the ability of 12 commodity-based leveraged ETFs in the ProShares family to achieve their stated investment objectives.They find that these 12 ETFs generate average daily returns that are not statistically significantly different from their stated objectives.They also find evidence that over their entire lives these ETFs generally underperform expectations when considering their exposure (long vs. short), desired leverage, and expense ratios. Despite this general underperformance relative to expectations, the authors also find that roughly 1/3 of the ETFs outperform expectations. They also report that over their entire lives the 12 leveraged ETFs in their sample struggle mightily to beat the performance of their corresponding unlevered commodities or indices. Their general inability to beat their corresponding unlevered commodities or indices over the long run is demonstrated to be a function of the price volatility of the commodities and indices. The authors conclude that these commodity-based leveraged ETFs are effective ways to gain double and double inverse exposure to the corresponding commodities and indices on a daily basis.However, they advise against using these ETFs in any sort of buy-and-hold investment program.