Do You Know How Your Leveraged ETFs Work? | Page 2 of 2 | ETF Trends

However, in times of increased volatility, leveraged ETF returns can fall behindtheir intended 2x or 3x strategies. For instance, when including the period leading up to the financial crisis and the financial meltdown, SSO rose 63.8% since 2007 while the S&P 500 gained 70.6%.

“In a volatile market, compounding can result in longer-term returns that are less than the sum of the individual daily returns,” according to ProShares.

Additionally, leveraged ETFs tend to be more expensive than the average index-based ETFs, which could also eat away at returns over the long run. The average expense ratio for leveraged ETFs is 0.92%, whereas the non-leveraged ETFs have an average expense ratio of 0.54%, according to XTF data.

For more information on geared products, visit our leveraged ETFs category.

Max Chen contributed to this article.