Multi-day Leveraged ETF Performance

Do leveraged exchange-traded funds (LETF) with daily leverage resets reliably fall behind portfolios with the same initial leverage but no resets? In his February 2025 paper entitled "Multi-day Return Properties of Leveraged Index ETFs", Baolian Wang compares the multi-day return properties of leveraged, daily reset LETFs to those of matched initial leverage positions with no resets. He estimates reset costs for the former and margin financing costs (based on the overnight Effective Federal Funds Rate) for the latter. Specifically, he considers LETFs for different combinations of:

• S&P 500 Index, Nasdaq 100 Index, Bloomberg U.S. Treasury 7-10 Year Index, MSCI EAFE Index and MSCI Emerging Markets Index as underlying assets.
• Holding intervals of 5, 10, 21, 63 and 252 trading days.
• Leverage multiples of 2x, 3x, -1x, -2x and -3x.

For each combination, he simulates 1,000 paths of daily returns using random draws of historical returns. For each path, he calculates holding interval returns for the daily reset and no reset alternatives, and their difference. Using daily total return data for the specified indexes and the overnight Effective Federal Funds Rate from respective index inceptions through June 2023, he finds that: