re: Leveraged ETFs - holding periods

Although the mathematical relationships the blog said are true, they don't address the underlying fundamental reasons why decay will always happen with ETFs and especially leveraged ETFs. I posted the below in another thread which echoes what I said above.

quote:

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In July 2011, there was a leveraged US Treasury ETF collateralized with 30% Italian BTPs. Are you kidding me? Sure, you see your holdings for an ETF but if you're in a leveraged ETF and you have to post collateral, or the value of your collateral gets haircut you're going to have to start scrambling, selling securities into a likely sell-off to meet margin. Then you turn around and try to match your exposures with the index you're trying to track? It's almost impossible to do. Even the best specialists that use uncorrelated collateral against their ETF assets are still going to have trouble tracking. That's not even taking into account re-weighting after new inflows/outflows, you can see how this can go downhill fast.

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In addition to the above, volatility ETFs have to constantly roll options to keep exposures, incurring transaction costs. That is something that the VIX does not do because it is a model portfolio. Hence continued erosion of returns.