Senorito, don't want to get bogged down in trading/investing debate. Your references to keeping a close eye on economic matters/technical analysis, etc, did not strike me as 'buy and forget' investing. Obviously, I accept that someone who buys and sells an index 2-10 years later is not a trader/active investor. Anyway, don't want to distort this thread so enough of that.
Where we really disagree is when you say that "proper research should help you avoid the mistake of choosing a bad fund" and that you "really dont see why these things should only be for 'traders'". Whether you have benefitted from l/t leveraged positions isn't the point. As I keep saying, even the ETF providers themselves warn that they are not designed for l/t positions. The issue of "research" and avoiding a "bad" fund is besides the point. The fact is that such etfs can wildly diverge over long periods even while they are doing exactly what they promised, ie, producing double the daily returns.
Further examples (including proshares);
1 - "between December 1, 2008, and April 30, 2009, a leveraged ETF seeking to deliver three times the daily return of the Russell 1000 Financial Services Index fell 53 percent, while the underlying index actually gained approximately 8 percent. A leveraged inverse ETF seeking to deliver three times the inverse of the Russell 1000 Financial Services Index’s daily return declined by 90 percent over the same period."
[broken link removed]
2 - "ProShares Ultra Oil & Gas lost 72% in 2008, according to ProShares. The bearish leveraged version, ProShares UltraShort Oil & Gas also lost money last year, shedding nearly 11%. Yet on a daily basis, the ETFs delivered their targeted leverage like clockwork, so they behaved exactly as they should have...
ProShares fund designed to return twice the opposite of the Dow Jones U.S. Real Estate Index was down 50% for 2008, while the index was also down, by 43%."
http://online.wsj.com/article/SB123111094917552317.html
3 - "Since June 21, 2006 SSO (2x S&P 500) is down 66% while SDS (-2x S&P 500) up on 12%.
* Since February 1, 2007 DIG (2x S&P 500 Energy) is down 63% while DUG (-2x S&P 500 Energy) is down 56%.
* Since November 6, 2008 FAS (3x Russell 1000 Financials) is down 84% while FAZ (-3x Russell 1000 Financials) is down 87%!! The inverse ETF has underperformed the long in a period where the underlying index is down 18%! ...the real travesty is that the total return for any number of these funds since inception is either negative or grossly different from the index
http://tickersense.typepad.com/tick...ed-etfs-beware-the-performance-conundrum.html
4 - "ProShares UltraShort Real Estate fund (trading symbol: SRS) seeks daily results, before fees and expenses, that correspond to twice the opposite of the daily performance of the Dow Jones U.S. Real Estate Index, the company says on its Web site.
Yet, according to the lawsuit, when the index fell about 39% from Jan. 2, 2008, to Dec. 17, 2008, the SRS fund fell about 48% -- "the antithesis of a directional play."
http://www.timesfirst.com/trade-news/203411/ProShare-Draws-Suit-Over-a-Leveraged-ETF.html
5 - "Dow Jones U.S. Oil & Gas Index, for instance, gained +1.6% from Dec. 1 to April 30. The conventional wisdom is that the leveraged ETF that tracks the index, the ProShares Ultra Oil & Gas (NYSE: DIG), should have doubled that performance and returned +3.2%. It didn't; it fell -5.6% instead"
[broken link removed]
6 - "Direxion Financial Bear 3x Shares (FAZ). This is an inverse leveraged ETF that is based on the Russell 1000 Financial Services Index.
On November 6, 2008, the index value closed at 720.446. Five months later, on April 6, 2009, the index ended the day at 520.629, for a drop of 27.7 percent.
So how do you think FAZ performed during this time? As an inverse fund, it should go up as the index goes down — and because FAZ is leveraged by a factor of three, your gain should be amplified three times over, right?
You might calculate that FAZ would have gone up 83.1 percent for this period (27.7 x 3 = 83.1).
Wrong …
In fact, FAZ actually fell 76.9 percent"
7 - Financial sector etfs - "1X Underlying Index ETF -(-6% Return)
3X Long ETF -(-64% Return)
3X Short ETF – (-84% Return)"
http://www.darwinsfinance.com/riskiest-etfs-earth-3x-returns/
8 - "plots the year-to-date performance of three ETFs: Direxion Daily Large-Cap Bull 3x, which is designed to triple the Russell 1000 Index’s return; Direxion Daily Large-Cap Bear 3x, which triples the Russell 1000’s inverse return; and the iShares Russell 1000 ETF, which (quaintly and simply) tracks the Russell Index.
Russell 1000 ETF is essentially flat year-to-date, a fact that would lead most logical investors to expect the leveraged ETFs to be roughly three-times over and below that mark. Far from it. Instead, both are off more than 25 percent for the year."
http://moneywatch.bnet.com/investin...s-are-dangerous-to-your-financial-health/249/
9 - "Only days after two lawsuits were filed against ProShares’ UltraShort Real Estate Fund (SRS: Quote, Profile, Advanced Chart, News), a third legal entity will begin investigating the leveraged ETF sector as a whole. Stanley, Mandel & Iola, L.L.P. and Wolf Haldenstein Adler Freeman & Herz LLP have announced their intent to find wrongdoing committed by virtually every leveraged ETF issuer on the market.
A press release issued by the two firms names virtually every major ETF issuer in the US markets: ProShares, Claymore, Rydex, Market Vectors, PowerShares, along with foreign ETF issuers Horizons and ETF Securities, as well as a handful of smaller ETF firms. The firms specifically spotlight a particular Russell 1000 Financial Services ETF, which declined more than 90% as the underlying index gained 8%.
While no further lawsuits have been filed, a broad investigation is indicative of future legal action against leveraged ETFs."
http://etf.com/category/ultra-short/
10 - "The new ProShares prospectus includes many graphic examples of the impact of “daily” leverage over longer periods of time. The chart below, taken from the prospectus, shows how both the +3x and -3x funds can lose money during a period when the underlying index has a 0% return.(3x fund returned -17%,3x inverse fund -31%)"
http://investwithanedge.com/index.php?s=leveraged
To sum up - "key point is that these ETFs provide leverage on a daily basis. Simply, investors are mistaken if they think they can buy a twice-leveraged ETF, hold it for a year, and end up with double the market's return..."We cannot stress enough that these aggressively leveraged products are not suitable as long-term investments," said John Gabriel, ETF analyst at Morningstar.
http://www.filife.com/stories/leveraged-and-inverse-etfs-are-shortterm-plays-only