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A Revised Survey on Leveraged and Inverse Leveraged ETFs

Gerasimos G. Rompotis
The Journal of Beta Investment Strategies Fall 2013, 4 (2) 45-66; DOI: https://doi.org/10.3905/jii.2013.4.2.045
Gerasimos G. Rompotis
is a post-graduate student at the National and Kapodistrian University in Athens, Greece.
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Abstract

In an article published in the Spring 2012 issue, the author drew the conclusion that the short and ultra ProShares exchange-traded funds (ETFs) fail to meet their daily performance targets. The current article comprises a revision to the old study using both net asset value and trading data; in the previous study, only trading data were used. Additionally, the efficiency of ProShares ETFs in achieving their goal is judged from a less strict perspective. Particularly, a maximum deviation between the returns of ProShares ETFs and their target of 0.50% in absolute terms is considered tolerable so as to conclude that ProShares ETFs manage to achieve their investment goals on a daily basis. The relevant findings are very strong when net asset values (NAVs) are taken into account, but they are less strong when returns calculated with closing trading prices are used. Adding comparable single-beta ETFs in the analysis, the author find that over the period under examination, the ultra ETFs beat the regular ones but the short ProShares ETFs are beaten by them. However, the regular ETFs are found to be more competent in replicating their benchmarks on a daily basis than the leveraged ETFs are in achieving their daily targets. Finally, the author suggests a hedging strategy that can mitigate the overall risk for investors involved in the leveraged ETF business.

TOPICS: Exchange-traded funds and applications, passive strategies, accounting and ratio analysis

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The Journal of Index Investing: 4 (2)
The Journal of Beta Investment Strategies
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Fall 2013
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A Revised Survey on Leveraged and Inverse Leveraged ETFs
Gerasimos G. Rompotis
The Journal of Beta Investment Strategies Aug 2013, 4 (2) 45-66; DOI: 10.3905/jii.2013.4.2.045

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A Revised Survey on Leveraged and Inverse Leveraged ETFs
Gerasimos G. Rompotis
The Journal of Beta Investment Strategies Aug 2013, 4 (2) 45-66; DOI: 10.3905/jii.2013.4.2.045
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    • THE SAMPLE
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