Clearing Up Some Beta Slippage MythsClearing Up Some Beta Slippage Myths
An interesting aspect of daily leveraged ETFs is that their net change over a multi-day time period does not generally equal the net change of the underlying index times the leverage factor.
August 25, 2016
Leveraged ETFs and beta slippage
Leveraged ETFs aim to multiple the gains of some index by a fixed factor. The focus of this article is on leveraged ETFs that work on daily gains.
For example, the ProShares Ultra S&P 500 ETF (SSO) and the ProShares UltraPro S&P 500 ETF (UPRO) aim to multiply daily gains of the S&P 500 by factors of 2 and 3, respectively.
An interesting aspect of daily leveraged ETFs is that their net change over a multi-day time period does not generally equal the net change of the underlying index times the leverage factor.
Suppose an index experiences daily gains of 3%, -3%, 3%, -3%. Its net change will have been -0.18%. The net change of a 3x daily ETF based on the index will have been -1.61%, which is much worse than 3 times -0.18%, or -0.54%.
This phenomenon is known as beta slippage or…
