Leveraged ETFs

Modelling and understanding returns

Models based on published research [1][2] can be used to calculate expected returns of daily rebalanced leveraged ETFs.

Disclaimer: Kwanti tools are provided for informational purposes and do not constitute advice for investment or trading.

Leverage ETF volatility

Forward estimate: returns

  • Expected return of a leveraged ETF under different market scenarios
  • Adjust the sliders to observe the effect of volatility and holding period on the ETF return
  • In volatile markets, buy-and-hold investors risk value erosion.

Leverage ETF volatility

Return of a Pair

Shorting leveraged ETFs by pairs does not necessarily produce a positive return. In trending markets with low volatility, the power of compounded returns dominates the effect of value erosion.


[1] The dynamics of Leveraged and Inverse-Exchange Traded Funds
Minder Cheng and Ananth Madhavan, Barclays Global Investors
[2] Path-dependence of Leveraged ETF returns
Marco Avellaneda & Stanley Zhang