A "Daily 2x S&P 500" leveraged ETF is held for several years. Its total return over that period is noticeably different from 2 times the S&P 500's total return over the same period. Which statements best explain this?

Question

Answer

The difference is fully explained by the ETF's higher expense ratio.

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Leveraged ETFs are designed as short-term trading instruments and are generally not suitable for long-term buy-and-hold investing: the difference in performance accumulates over the long period of time.

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The difference is mainly caused by fund managers failing to replicate the S&P 500 correctly.

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Because the ETF resets its leverage every day, daily gains and losses compound in a path-dependent way, which over time causes the long-run return to drift away from "2x the index return.

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A "Daily 2x S&P 500" leveraged ETF is held for several years. Its total return o...

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