EC Who’s Winning The Bond War?

It’s tough being a leveraged ETF portfolio. You’re likely to be both loved and reviled, often at the same time. Scorn is heaped upon you when your value sinks faster than a deep-sea anchor but you’re adored as your share price soars stratospherically. Now that the Fed has signaled its willingness to hit the pause button on further rate cuts, it’s a good time to look back to measure leverage’s impact.

Leveraged bond ETFs got nosebleeds from the altitudes they attained while interest rates were ratcheted down over the past year. Positively leveraged funds, that is.

US Treasury Yield Curve


Who’s done the best? Well, among the top five performers on a year-to-date basis, three come from the ProShares stable and two hail from the Direxion family.


At the top of the table is the triple-leveraged Direxion Daily 20+ Year Treasury Bull 3x Shares (NYSE Arca: TMFportfolio with a whopping 55-year duration. Exquisitely sensitive to interest rate shifts at the long end of the yield curve, TMF was rocket-fueled this year, earning a 1.32 information ratio. The quotient of an investment’s excess return over its tracking error, a positive IR is an ultimate justification for active risk.

The ProShares Ultra 20+ Year Treasury (NYSE Arca: UBT) tracks the same index as TMF but at just 200 percent of the benchmark’s daily returns. Not surprisingly, UBT’s year-to-date return significantly lags TMF’s, but the ProShares fund is a more cost-efficient producer of excess returns.

The table’s shortest duration belongs to the ProShares Ultra High Yield (NYSE Arca: UJB) fund. The lightly traded ETF aims to produce double the daily return of the Markit iBoxx USD Liquid High Yield Index, a market-value-weighted assortment of so-called “junk” bonds with remaining maturities of 3 to 15 years.

Exposure to intermediate-term Treasurys is offered by the Direxion Daily 7-10 Year Treasury Bull 3x Shares (NYSE Arca: TYD) fund and the ProShares Ultra 7-10 Year Treasury (NYSE Arca: UST) portfolio.

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Disclosure: None.

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