Short and Leveraged ETPs are designed around the daily performance of their
underlying asset and are intended to be traded intraday. They have a
Investors may hold Short and Leveraged ETPs for longer than one day; however, the cumulative returns could be larger or smaller than the leverage factor implies. This is because the ETPs are “reset” at the end of each trading day.
The daily resets of leveraged ETPs cause a compounding effect, which means that the gains or losses from one period affect the base from which the next period’s returns are calculated. As the base increases or decreases, the leveraged return also gets larger or smaller in each subsequent period. Therefore, the return for any given period will depend on both the percentage gain/loss for that period, plus any cumulative gain/loss on the initial investment.
Compounding can have both positive and negative effects and investor considering holding leveraged ETPs for extended periods is important to fully understand that there could be a significant difference between the ETP performance, and the benchmark performance multiplied by the leverage factor.
The compounding effect can positively enhance returns in trending markets (upward or downward) whilst negatively impacting returns when the markets are more volatile or choppy.
Daily returns in an up-trending market
Let’s have a look at an example which show the cumulative performance of an underlying asset which rises 5% every day, for ten days in a row, and a 3x Leveraged ETP, which delivers 3x the daily return of the underlying instrument.
• The underlying asset rises 5% each day for 10 consecutive days.• The 3x Leveraged ETP rises 15% each day for 10 consecutive days.
• Investors may expect that the ten-day return would produce 3x the cumulative return of the underlying i.e., 189% (3 x 63%), while the cumulative return of the ETP is 305%, as the compounding effect has outperformed the sum of the daily returns.
Daily returns in a down-trending market
Let’s have a look at an example which show the cumulative performance of an underlying asset which falls 5% every day, for ten consecutive days, and a 3x Leveraged ETP, which delivers 3x the daily return of the underlying instrument.
• The underlying asset value falls by 5% for ten days in a row.
• The 3x Leveraged ETP falls 15% each day.
• Investors may expect that on day 8 the 3x Leveraged ETP would lose its entire value (-100%), while the cumulative return of the ETP for the ten-day period is -80%, as the compounding effect has outperformed the sum of negative daily returns.
Daily returns in a volatile market
Let’s have a look at an example which show the cumulative performance of an underlying asset which rises and falls by 5% continuously, for ten consecutive days, and a 3x Leveraged ETP, which delivers 3x the daily return of the underlying instrument.
• The underlying asset value rises 5% on day one, then falls by 5% on day two, and so on.
• The 3x Leveraged ETP rises 15% on day one, then falls by 15% on day two, and so on.
• Investors may expect that the ten-day return would produce 3x the cumulative return of the index i.e. – 3.73% (3 x -1.24%), while the cumulative return of the ETP is -11%, as the compounding effect has underperformed the sum of daily returns.
The key factors of compounding are:
• Investment returns for periods longer than one day are affected by compounding
• Daily compounding can have either a positive or negative effect on returns
• For periods longer than one day, daily compounded returns may not be equal to an unleveraged return (or the benchmark index) multiplied by the leverage factor
• A trending market (upwards or downwards) will result in returns which appear to “outperform”
• High volatility or a sideways trending market will result in returns which appear to “underperform”
• The compounding effect increases with higher volatility, greater leverage and longer holding periods
Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.
Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.
Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.
Julian joined Leverage Shares in 2018 as part of the company’s primary expansion in Eastern Europe. He is responsible for web content and raising brand awareness.
Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.
For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.
Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.
Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.
Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.
Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.
He joined Leverage Shares from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.
Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.
Terms and Conditions
If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.
If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.
The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.
Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
United States Visitors
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.
Persons accessing this website in the European Economic Area
Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
Exclusion of Liability
Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.
This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2.
By clicking you agree to the Terms and Conditions displayed.