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.

Answer

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.

Answer

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

Answer

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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