Direxion Daily 20+ Year Treasury Bull 3X Shares (NYSEARCA: TMF) and Direxion Daily 20+ Year Treasury Bear 3X Shares (NYSEARCA: TMV) are leveraged ETFs that have a useful place in a trading philosophy. They are also just not investments, things to buy and hold. On the grounds that if you do buy and hold them then you're going to lose money. This is something true of leveraged ETFs - it's just something built into how the system works. It's even true that leveraged ETFs on Treasuries are a less bad idea than leveraged ETFs on stock or an index but still. Why get involved in a trade where you're using instruments inappropriately, in a manner that is simply bound to lose you money?
Now, the ETF idea is great. Often they're more liquid than the underlying (something not true of Treasuries, but would be of corporate bonds for example) and they also allow much greater diversification (again, not true here, but is of index funds). There's also nothing wrong with leverage inside an ETF. But that last is only true if we use the instrument properly. Because that leverage has a cost - nothing comes from free in markets - and that cost mounts up the longer a leveraged ETF is held.
TMF from NASDAQ
TMV from NASDAQ
As we can see they tend to be mirrors of each other and that's good, that's what we want them to be. But a true mirror would not just track on a daily basis, it would track over time. And that's not true here. The 12 month return on TMV is 14.6%. The 12 month on TMF is minus 38.6%.
Now, one of those is bull, the other bear, so yes, one should have a positive return over any period, the other a loss over the same period. But the losses should be symmetrical. Start with $100, if one makes $14 then the other should lose $14. Which, if you were in a regular and unleveraged ETF, they would. But those losses are not symmetrical. There's actually a further 22% loss in the system there (no, it doesn't matter which way around we present this, whether it's a smaller profit on the one or a larger loss on the other) and that's what the cost of using leveraged ETFs over time is.
Leveraged ETFs are designed for, great for, intraday trades either as speculation or a hedge. They are absolutely not for a long term position - because long term holdings will guarantee you a loss as against using the correct instrument for the designed strategy.
As in the old phrase, horses for courses. Make sure you use the right instrument for what you're trying to do.
