I understand the conventional wisdom is levered ETF/Ns are not buy and hold investments because they aim for 2 or 3x returns on any given day and rebalance, and that after daily rebalancing losses can compound greatly over a short period resulting in loss of most capital.
I also understand that during times of increased volatility these instruments can underperform the underlying indices.
But longterm returns are below even after these funds have lost half their value in recent weeks:
TECL
Technology Bull 3X Direxion
1 Year: +26.15%
5 Year: +624.40%
10 Year: +2,872.82%
TQQQ
Ultrapro QQQ ETF
1 Year: +6.35%
5 Year: +522.69%
10 Year: +3,522.07%
UCO
Ultra Bloomberg Crude Oil ETF (2x)
1 Year: +146.76%
5 Years: +5.92%
10 Years: -66.54%
TECL top holdings include about 50% AAPL/MSFT/NVDA/V/MA—all great companies IMO.
My general investment thesis is that there might be some contraction in Growth as the Fed tightens but tech is obviously not going anywhere, and inflationary concerns should be hedged by commodity exposure, and beyond Ukraine I expect oil to surpass 2008 peaks, and lastly rents will rise faster than inflation and real estate exposure such as with Blackstone (BX) is a good idea.
I’m thinking of buying 50% TECL and 50% ECO and funneling profits into BX with any 20% rise. I’m hoping any losses in one (TECL or UCO) would be mostly offset by gains in the other.
Questions:
- I know losses can compound quickly with leveraged ETFs but can’t gains also compound rapidly? Is the risk-reward profile negatively screwed towards losses somehow?
- Are there any other major risks I don’t understand?
- Could you please comment on my tentative strategy of holding just TECL and UCO, and if profitable buying BX?
- If TECL and TQQQ were up 7000% until a few weeks ago and still 25-3500% in five years why are they not recommended as long term investments?
Thank you very much.
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