{"id":2690,"date":"2023-05-01T09:26:32","date_gmt":"2023-05-01T13:26:32","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/drift-report-on-spxs-and-21-leveraged-etfs-nysearcaspxs\/"},"modified":"2023-05-01T09:26:33","modified_gmt":"2023-05-01T13:26:33","slug":"drift-report-on-spxs-and-21-leveraged-etfs-nysearcaspxs","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=2690","title":{"rendered":"Drift Report On SPXS And 21 Leveraged ETFs (NYSEARCA:SPXS)"},"content":{"rendered":"
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Direxion Daily S&P 500\u00ae Bear 3X Shares ETF (NYSEARCA:SPXS<\/span>) is one of the most popular instruments to short the broad market for trading or hedging purposes. However, its daily -3X leverage factor is a source of drift. It must be closely monitored to detect changes in the drift regime. This article explains what “drift” means, quantifies it in more than 20 leveraged exchange-traded funds, or ETFs, shows historical data, and finally concludes about the current market conditions. The analysis is also valid for the Direxion Daily S&P 500\u00ae Bear 3X Shares ETF (<\/span>SPXU), which tracks the same index with the same factor and has an almost identical behavior.<\/span><\/p>\n

The reason why leveraged ETFs drift<\/strong><\/h2>\n

Leveraged ETFs often underperform their underlying index leveraged by the same factor. The decay has essentially four reasons: beta-slippage, roll yield, tracking errors, and management costs. Beta-slippage is the main reason in equity leveraged ETFs. To understand what is beta-slippage, imagine a very volatile asset that goes up 25% one day and down 20% the day after. A perfect double-leveraged ETF goes up 50% the first day and down 40% the second day. On the close of the second day, the underlying asset is back to its initial price:<\/span><\/p>\n

(1 + 0.25) x (1 – 0.2) = 1<\/p>\n

And the perfect leveraged ETF?<\/p>\n

(1 + 0.5) x (1 – 0.4) = 0.9<\/p>\n

Nothing has changed for the underlying asset, and the ETF price is down 10%. It is not a scam, just the normal behavior of a leveraged and rebalanced portfolio. A good news: in a trending market, beta-slippage can be positive. If the underlying index goes up 10% two days in a row, on the second day, it is up 21%:<\/p>\n

(1 + 0.1) * (1 + 0.1) = 1.21<\/p>\n

The perfect 2x leveraged ETFs is up 44%:<\/p>\n

(1 + 0.2) * (1 + 0.2) = 1.44<\/p>\n

Beta-slippage is path-dependent. If the underlying index gains 50% on day 1 and loses 33.33% on day 2, it is back to its initial value, like in the first example. However, the 2x ETF loses one third of its value, instead of 10% in the first case:<\/p>\n

(1 + 1) x (1 – 0.6667) = 0.6667<\/p>\n

Without a demonstration, it shows that the higher the volatility, the higher the decay. Hence, its name: “beta” is a statistical measure of volatility. However, it is a bit misleading because the decay cannot be calculated from beta.<\/p>\n

Monthly and yearly drift watchlist<\/strong><\/h2>\n

There is no standard or universal definition of leveraged ETF drift. Mine is simple and based on the difference between the leveraged ETF performance and \u00d1 times the performance of the underlying index on a given time interval, if \u00d1 is the leveraging factor. Most of the time, this factor defines a daily objective relative to an underlying index. However, some dividend-oriented leveraged products have been defined with a monthly objective (mostly defunct ETNs sponsored by Credit Suisse Group (CS) and UBS: CEFL, BDCL, SDYL, MLPQ, MORL\u2026).<\/p>\n

First, let\u2019s start by defining \u201cReturn\u201d: it is the return of a leveraged ETF in a given time interval, including dividends. \u201cIndexReturn\u201d is the return of a non-leveraged ETF on the same underlying asset in the same time interval, including dividends. \u201cAbs\u201d is the absolute value operator. My \u201cDrift\u201d is the drift of a leveraged ETF normalized to the underlying index exposure in a time interval. It is calculated as follows:<\/p>\n

Drift = (Return – (IndexReturn x \u00d1))\/ Abs(\u00d1)<\/p>\n

\u201cDecay\u201d means negative drift. \u201cMonth\u201d stands for 21 trading days, \u201cyear\u201d for 252 trading days.<\/p>\n

<\/span><\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
\n

Index<\/p>\n<\/td>\n

\n

\u00d1<\/p>\n<\/td>\n

\n

Ticker<\/p>\n<\/td>\n

\n

1-month Return<\/p>\n<\/td>\n

\n

1-month Drift<\/p>\n<\/td>\n

\n

1-year Return<\/p>\n<\/td>\n

\n

1-year Drift<\/p>\n<\/td>\n<\/tr>\n

\n

S&P 500<\/p>\n<\/td>\n

\n

1<\/p>\n<\/td>\n

\n

SPY<\/p>\n<\/td>\n

\n

3.63%<\/p>\n<\/td>\n

\n

0.00%<\/p>\n<\/td>\n

\n

1.37%<\/p>\n<\/td>\n

\n

0.00%<\/p>\n<\/td>\n<\/tr>\n

<\/td>\n\n

2<\/p>\n<\/td>\n

\n

SSO<\/p>\n<\/td>\n

\n

6.60%<\/p>\n<\/td>\n

\n

-0.33%<\/p>\n<\/td>\n

\n

-7.22%<\/p>\n<\/td>\n

\n

-4.98%<\/p>\n<\/td>\n<\/tr>\n

<\/td>\n\n

-2<\/p>\n<\/td>\n

\n

SDS<\/p>\n<\/td>\n

\n

-6.12%<\/p>\n<\/td>\n

\n

0.57%<\/p>\n<\/td>\n

\n

-9.53%<\/p>\n<\/td>\n

\n

-3.40%<\/p>\n<\/td>\n<\/tr>\n

<\/td>\n\n

3<\/p>\n<\/td>\n

\n

UPRO<\/p>\n<\/td>\n

\n

9.78%<\/p>\n<\/td>\n

\n

-0.37%<\/p>\n<\/td>\n

\n

-18.84%<\/p>\n<\/td>\n

\n

-7.65%<\/p>\n<\/td>\n<\/tr>\n

<\/td>\n\n

-3<\/p>\n<\/td>\n

\n

SPXS<\/p>\n<\/td>\n

\n

-9.43%<\/p>\n<\/td>\n

\n

0.49%<\/p>\n<\/td>\n

\n

-21.26%<\/p>\n<\/td>\n

\n

-5.72%<\/p>\n<\/td>\n<\/tr>\n

\n

ICE US20+ Tbond<\/p>\n<\/td>\n

\n

1<\/p>\n<\/td>\n

\n

TLT<\/p>\n<\/td>\n

\n

2.31%<\/p>\n<\/td>\n

\n

0.00%<\/p>\n<\/td>\n

\n

-9.53%<\/p>\n<\/td>\n

\n

0.00%<\/p>\n<\/td>\n<\/tr>\n

<\/td>\n\n

3<\/p>\n<\/td>\n

\n

TMF<\/p>\n<\/td>\n

\n

5.36%<\/p>\n<\/td>\n

\n

-0.52%<\/p>\n<\/td>\n

\n

-39.67%<\/p>\n<\/td>\n

\n

-3.69%<\/p>\n<\/td>\n<\/tr>\n

<\/td>\n\n

-3<\/p>\n<\/td>\n

\n

TMV<\/p>\n<\/td>\n

\n

-6.29%<\/p>\n<\/td>\n

\n

0.21%<\/p>\n<\/td>\n

\n

16.95%<\/p>\n<\/td>\n

\n

-3.88%<\/p>\n<\/td>\n<\/tr>\n

\n

NASDAQ 100<\/p>\n<\/td>\n

\n

1<\/p>\n<\/td>\n

\n

QQQ<\/p>\n<\/td>\n

\n

3.15%<\/p>\n<\/td>\n

\n

0.00%<\/p>\n<\/td>\n

\n

2.61%<\/p>\n<\/td>\n

\n

0.00%<\/p>\n<\/td>\n<\/tr>\n

<\/td>\n\n

3<\/p>\n<\/td>\n

\n

TQQQ<\/p>\n<\/td>\n

\n

7.70%<\/p>\n<\/td>\n

\n

-0.58%<\/p>\n<\/td>\n

\n

-24.92%<\/p>\n<\/td>\n

\n

-10.92%<\/p>\n<\/td>\n<\/tr>\n

<\/td>\n\n

-3<\/p>\n<\/td>\n

\n

SQQQ<\/p>\n<\/td>\n

\n

-8.82%<\/p>\n<\/td>\n

\n

0.21%<\/p>\n<\/td>\n

\n

-39.68%<\/p>\n<\/td>\n

\n

-10.62%<\/p>\n<\/td>\n<\/tr>\n

\n

DJ 30<\/p>\n<\/td>\n

\n

1<\/p>\n<\/td>\n

\n

DIA<\/p>\n<\/td>\n

\n

4.32%<\/p>\n<\/td>\n

\n

0.00%<\/p>\n<\/td>\n

\n

4.50%<\/p>\n<\/td>\n

\n

0.00%<\/p>\n<\/td>\n<\/tr>\n

<\/td>\n\n

3<\/p>\n<\/td>\n

\n

UDOW<\/p>\n<\/td>\n

\n

12.00%<\/p>\n<\/td>\n

\n

-0.32%<\/p>\n<\/td>\n

\n

-6.05%<\/p>\n<\/td>\n

\n

-6.52%<\/p>\n<\/td>\n<\/tr>\n

<\/td>\n\n

-3<\/p>\n<\/td>\n

\n

SDOW<\/p>\n<\/td>\n

\n

-11.02%<\/p>\n<\/td>\n

\n

0.65%<\/p>\n<\/td>\n

\n

-20.89%<\/p>\n<\/td>\n

\n

-2.46%<\/p>\n<\/td>\n<\/tr>\n

\n

Russell 2000<\/p>\n<\/td>\n

\n

1<\/p>\n<\/td>\n

\n

IWM<\/p>\n<\/td>\n

\n

-0.13%<\/p>\n<\/td>\n

\n

0.00%<\/p>\n<\/td>\n

\n

-4.77%<\/p>\n<\/td>\n

\n

0.00%<\/p>\n<\/td>\n<\/tr>\n

<\/td>\n\n

3<\/p>\n<\/td>\n

\n

TNA<\/p>\n<\/td>\n

\n

-2.22%<\/p>\n<\/td>\n

\n

-0.61%<\/p>\n<\/td>\n

\n

-35.69%<\/p>\n<\/td>\n

\n

-7.13%<\/p>\n<\/td>\n<\/tr>\n

<\/td>\n\n

-3<\/p>\n<\/td>\n

\n

TZA<\/p>\n<\/td>\n

\n

0.55%<\/p>\n<\/td>\n

\n

0.05%<\/p>\n<\/td>\n

\n

-15.62%<\/p>\n<\/td>\n

\n

-9.98%<\/p>\n<\/td>\n<\/tr>\n

\n

MSCI Emerging<\/p>\n<\/td>\n

\n

1<\/p>\n<\/td>\n

\n

EEM<\/p>\n<\/td>\n

\n

0.03%<\/p>\n<\/td>\n

\n

0.00%<\/p>\n<\/td>\n

\n

-3.76%<\/p>\n<\/td>\n

\n

0.00%<\/p>\n<\/td>\n<\/tr>\n

<\/td>\n\n

3<\/p>\n<\/td>\n

\n

EDC<\/p>\n<\/td>\n

\n

-1.34%<\/p>\n<\/td>\n

\n

-0.48%<\/p>\n<\/td>\n

\n

-28.33%<\/p>\n<\/td>\n

\n

-5.68%<\/p>\n<\/td>\n<\/tr>\n

<\/td>\n\n

-3<\/p>\n<\/td>\n

\n

EDZ<\/p>\n<\/td>\n

\n

0.16%<\/p>\n<\/td>\n

\n

0.08%<\/p>\n<\/td>\n

\n

-3.68%<\/p>\n<\/td>\n

\n

-4.99%<\/p>\n<\/td>\n<\/tr>\n

\n

Gold spot<\/p>\n<\/td>\n

\n

1<\/p>\n<\/td>\n

\n

GLD<\/p>\n<\/td>\n

\n

1.24%<\/p>\n<\/td>\n

\n

0.00%<\/p>\n<\/td>\n

\n

5.01%<\/p>\n<\/td>\n

\n

0.00%<\/p>\n<\/td>\n<\/tr>\n

<\/td>\n\n

2<\/p>\n<\/td>\n

\n

UGL<\/p>\n<\/td>\n

\n

1.74%<\/p>\n<\/td>\n

\n

-0.37%<\/p>\n<\/td>\n

\n

2.10%<\/p>\n<\/td>\n

\n

-3.96%<\/p>\n<\/td>\n<\/tr>\n

<\/td>\n\n

-2<\/p>\n<\/td>\n

\n

GLL<\/p>\n<\/td>\n

\n

-1.85%<\/p>\n<\/td>\n

\n

0.32%<\/p>\n<\/td>\n

\n

-9.03%<\/p>\n<\/td>\n

\n

0.50%<\/p>\n<\/td>\n<\/tr>\n

\n

Silver spot<\/p>\n<\/td>\n

\n

1<\/p>\n<\/td>\n

\n

SLV<\/p>\n<\/td>\n

\n

7.28%<\/p>\n<\/td>\n

\n

0.00%<\/p>\n<\/td>\n

\n

7.03%<\/p>\n<\/td>\n

\n

0.00%<\/p>\n<\/td>\n<\/tr>\n

<\/td>\n\n

2<\/p>\n<\/td>\n

\n

AGQ<\/p>\n<\/td>\n

\n

14.21%<\/p>\n<\/td>\n

\n

-0.18%<\/p>\n<\/td>\n

\n

0.42%<\/p>\n<\/td>\n

\n

-6.82%<\/p>\n<\/td>\n<\/tr>\n

<\/td>\n\n

-2<\/p>\n<\/td>\n

\n

ZSL<\/p>\n<\/td>\n

\n

-13.74%<\/p>\n<\/td>\n

\n

0.41%<\/p>\n<\/td>\n

\n

-30.63%<\/p>\n<\/td>\n

\n

-8.29%<\/p>\n<\/td>\n<\/tr>\n

\n

S&P Biotech Select<\/p>\n<\/td>\n

\n

1<\/p>\n<\/td>\n

\n

XBI<\/p>\n<\/td>\n

\n

5.08%<\/p>\n<\/td>\n

\n

0.00%<\/p>\n<\/td>\n

\n

5.64%<\/p>\n<\/td>\n

\n

0.00%<\/p>\n<\/td>\n<\/tr>\n

<\/td>\n\n

3<\/p>\n<\/td>\n

\n

LABU<\/p>\n<\/td>\n

\n

12.30%<\/p>\n<\/td>\n

\n

-0.98%<\/p>\n<\/td>\n

\n

-37.49%<\/p>\n<\/td>\n

\n

-18.14%<\/p>\n<\/td>\n<\/tr>\n

<\/td>\n\n

-3<\/p>\n<\/td>\n

\n

LABD<\/p>\n<\/td>\n

\n

-17.65%<\/p>\n<\/td>\n

\n

-0.80%<\/p>\n<\/td>\n

\n

-67.65%<\/p>\n<\/td>\n

\n

-16.91%<\/p>\n<\/td>\n<\/tr>\n

\n

PHLX Semicond.<\/p>\n<\/td>\n

\n

1<\/p>\n<\/td>\n

\n

SOXX<\/p>\n<\/td>\n

\n

-5.21%<\/p>\n<\/td>\n

\n

0.00%<\/p>\n<\/td>\n

\n

5.14%<\/p>\n<\/td>\n

\n

0.00%<\/p>\n<\/td>\n<\/tr>\n

<\/td>\n\n

3<\/p>\n<\/td>\n

\n

SOXL<\/p>\n<\/td>\n

\n

-16.69%<\/p>\n<\/td>\n

\n

-0.35%<\/p>\n<\/td>\n

\n

-34.55%<\/p>\n<\/td>\n

\n

-16.66%<\/p>\n<\/td>\n<\/tr>\n

<\/td>\n\n

-3<\/p>\n<\/td>\n

\n

SOXS<\/p>\n<\/td>\n

\n

17.02%<\/p>\n<\/td>\n

\n

0.46%<\/p>\n<\/td>\n

\n

-65.39%<\/p>\n<\/td>\n

\n

-16.66%<\/p>\n<\/td>\n<\/tr>\n<\/table>\n

<\/span><\/span>