Beware Leveraged ETFs: List of Leveraged ETFs for Traders

Here is a list of leveraged ETFs posted by Scott on Silicon Investor

I prefer ETFs that do not use leverage.  If you are day trading 1% of your portfolio into a 3x leveraged ETF, why not use 3% in a lower expense ETF such as DIA , SPY or QQQ?

This graph shows SPY vs. its 2x and 3x ETFs, SPUU and SPXL, respectively.  You can clearly see the slippage and the ratios sure are not 2 and 3x on a YTD chart with two months and eighteen days.

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This graph shows SPY vs. its 2x and 3x ETFs, SPUU and SPXL, respectively on a 5 day scale:

Warnings.  

• Leveraged ETFs get leverage at a very high price so they can lose money in a flat market. 
• I DO NOT RECOMMEND holding them overnight.
• Leveraged ETFs are really only for day traders who believe they can make enough from market timing to offset the high expenses.

SDS Warning: UltraShort S&P500 ProShares Not For Long Term Positions

The UltraShort S&P500 ProShares Fund (Ticker SDS) may strive for daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the S&P 500 index, but the expense drag to create the leverage may make the fund unsuitable for a long term "investment."

According to ETF Connect, in 2008, SDS gained 69.72% and SPY lost 37.70%. Twice the SPY losses would be 75.4%. The 5-day charts below show tight two to one inverse tracking over 5 days but over a year, it appears about 6% are lost to fund and transaction costs. 6% per year is a large fence to jump for an investment.

Chart of the S&P500 Index (^GSPC) vs SDS

Click Current Chart Courtesy of Yahoo! for more info

Click Current Chart Courtesy of Yahoo! for more info

As the historical chart below shows, the S&P500 was down a couple of percent over the three month period ending January 9, 2009 while SDS was down over 30%!

This doesn't make sense given Yahoo! charts are supposed to include the distributions. This table shows SDS paid a hefty dividend:

Date	Open	High	Low	Close	Volume	Adj Close*
31-Dec-08	72.65	72.91	69.57	70.94	21,322,200	70.94
30-Dec-08	75.33	76.04	72.58	72.71	23,975,600	72.71
29-Dec-08	75.91	78.61	75.64	76.13	18,977,500	76.13
26-Dec-08	75.69	77.00	75.60	76.11	9,761,700	76.11
24-Dec-08	77.10	77.96	76.36	76.83	8,619,400	76.83
23-Dec-08	75.40	78.26	74.60	77.43	31,689,800	77.43
23-Dec-08	$ 11.49 Dividend
22-Dec-08	84.58	90.50	84.43	87.44	35,138,400	75.95

I would not be happy trading SDS to scalp a few percent then learn I got a 14% dividend to pay taxes on!

As the next historical chart shows, SDS seems to work well on a daily basis for day traders who enter and exit many times during a day.

FUND OPERATIONS

	SDS	Category Avg.
Total Expense Ratio	0.91%	N/A
Total Net Assets	2.90B	170.28M

Contact Info: ProShares client Services at 866-PRO-5125 or email them at info@proshares.com

Webstite with fund list: http://www.proshares.com/funds

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