When properly used, leveraged exchange traded funds can be potent tools. The temptation of that potency must be accompanied by the reminder that these products are best suited for active, risk-tolerant traders, something that both ProShares and Direxion, the two largest issuers of leveraged of inverse and leveraged ETFs, do a good job of explaining to investors on their web sites.
With stocks and other riskier assets, such as oil, being taken to task in October, some leveraged ETFs are notching stellar performances. For example, the Direxion Daily Energy Bear 3X Shares (NYSEArca: ERY) and the Direxion Daily Semiconductors Bear 3x Shares (NYSEArca: SOXS) up an average of 33% since we highlighted the two ETFs just a week ago. [Leveraged ETFs for the Adventurous]
Those are two examples of leveraged ETFs really working for investors, but long leveraged bond ETFs are getting absolutely drubbed. To this point in Wednesday’s trading session, 32 ETFs have hit new all-time lows, nine of which are bearish plays on U.S. Treasuries.
That is not surprising given the stellar returns offered by some Treasury ETF this year. The S&P 500 entered Wednesday with a year-to-date gain of 2.5%. That is next to nothing compared to the 19% gained by the iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT) and the 6.5% added by the iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF).
It should also be noted that the iPath Dow Jones-UBS Coffee Total Return Sub-Index ETN (NYSEArca: JO) is the only non-leveraged exchange traded product that has outperformed the PIMCO 25+ Year Zero Coupon U.S. Treasury Index Fund (NYSEArca: ZROZ) this year. [Racing to Treasury ETFs]
Jaw-dropping performances by TLT, ZROZ and others have led to severe punishment for the likes of the ProShares UltraShort 20+ Year Treasury (NYSEArca: TBT), a double-leveraged bet against longer-dated government bonds, and the Direxion Daily 20-Year Treasury Bear 3X Shares (NYSEArca: TMV). TBT and TMV are down 5.4% and 8.2%, respectively today, both on heavy volume. Each is a member of the aforementioned new all-time low club.