Says who? I hold them long-term at it works out very well. The only problem is the volatility tax you have to pay. Formula for volatility tax is:
actual returns = return - var(r) / 2
If the S&P 500 has a Sharpe ratio of one and say, a 10% mean yearly return and 10% vol, we first need to turn it into single day returns and volatility (since these leveraged products rebalance daily) so we get:
We can see that the S&P 500 3x leveraged is an excellent investment on a non risk-adjusted basis. On a risk-adjusted basis it's worse, the S&P 500 in the example having a Sharpe ratio of 1 while the 3x S&P 500 having a Sharpe ratio of 0.8499. But since you can't eat risk adjusted returns and it's going to be difficult for retail investors to get significant leverage to actually invest in good risk-adjusted portfolios, the 3x daily levered S&P 500 is a fantastic investment.
The prospectus of UPRO [1] : "returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period."
actual returns = return - var(r) / 2
If the S&P 500 has a Sharpe ratio of one and say, a 10% mean yearly return and 10% vol, we first need to turn it into single day returns and volatility (since these leveraged products rebalance daily) so we get:
S&P 500 Daily Returns = S&P 500 Daily Vol = 0.1 / sqrt(252) = .006299 or ~6 basis points
Before the volatility tax, thix means that our leveraged product should get 18 basis points of returns and volatility daily. In our annualized we get:
3x S&P 500 Annualized Returns = Annualized Vol = 29.99%
Now we factor in the volatility tax:
actual returns = .2999 - .2999^2 / 2 = 25.49%
Now comparing with actual market data: https://www.etf.com/UPRO#overview
PERFORMANCE [as of 09/19/19] 1 MONTH 3 MONTHS YTD 1 YEAR 3 YEARS 5 YEARS 10 YEARS UPRO 12.19% 7.41% 64.68% 1.13% 34.64% 22.78% 31.97%
The annualized return of UPRO is 31.97%.
If we look at: https://www.investopedia.com/ask/answers/042415/what-average...
We can see that the S&P 500 3x leveraged is an excellent investment on a non risk-adjusted basis. On a risk-adjusted basis it's worse, the S&P 500 in the example having a Sharpe ratio of 1 while the 3x S&P 500 having a Sharpe ratio of 0.8499. But since you can't eat risk adjusted returns and it's going to be difficult for retail investors to get significant leverage to actually invest in good risk-adjusted portfolios, the 3x daily levered S&P 500 is a fantastic investment.