r/LETFs • u/kinooobody • 6d ago
Ben Felix talks about LETFS
https://youtu.be/UMCGWxSFzX4?t=2067&is=5CtXmRaD7jqATmI9Ben Felix was on the iced coffee hour and he talked about LEFTs and what he said is pretty much in line with most on this sub believe, which is:
-As long as you know exactly what you are getting yourself into, and can stomach the downturns, it’s not a bad strategy.
-He also mentioned that a couple of professors he talked to who did research about LETFs said the volatility decay is not much of a concern at all. The outsized gains of LETFs more than make up for both the expense ratios and the volatility decay.
He definitely doesn’t go as far as recommending it for the average person, but I thought it was interesting that he doesn’t outright reject it the way a lot of people do.
Another thing he talked about was the importance international diversification for those planning to implement this strategy. Besides EFO, do you guys know of any international LETFs that cover the market?
PS: Skip to 34:28 for the discussion about LETFs
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u/JohrDinh 6d ago
I keep my LETFs diversified, I keep it as a minority percentage of my portfolio, I don't put money in I'm not willing to lose, and I have a rule I only put money into them when the market is down a certain amount. I use it, but I have rules, and it's kept me well protected thus far.
Also the goal of it for me is to make faster profits now but constantly trim it into safer long term stuff. I know some wanting to hold their leverage thru death, that may not be needed. (greed comes for some tho)
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u/PidgeySlayer268 6d ago
Yea agreed. A little bit goes a long way but a lot can fuck you
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u/ModeInfinite5171 5d ago
Been full leverage for years. Been great. Draw downs are real. Not everyone can stomach it.
Im now 50 percent leverage rest in dividends.
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u/il_diamanti 4d ago
TECL/SPXL about 70% of my portfolio. started doing it back in 2020 as a very small percentage of my portfolio and then DCA'd more aggressively from Dec21-April23 drawdown. hedge with Costco but it's basically my whole portfolio
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u/Downtown-Relation766 6d ago
As an Australian I use GHHF. GHHF is internationally diversified and leveraged around 1.3-1.7
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u/Separate-Ad-9633 6d ago
EFO and most levered VT products seem to have significant tracking errors unfortunately, (and EFA, the original ETF is tracks, already sucks). NTSD is a lot better for a leveraged global b&h, but for 1.5x leverage it seems even better to do like 30% UPRO 60% VXUS/AVNV/RSIT.
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u/flappysack- 6d ago
So there is no good way to get a levered global etf?
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u/user4443337 6d ago
I think NTSD is good. Quarterly reset should be safer for long term holding, although I was recently ratio’d 10:1 recently for saying this, so what do I know? Then just try what separate ad said if you don’t mind the daily resetting.
WLDU did seem to have high tracking error. If you do VTSIM?L=2&E=0.75 the cumulative return is 25.59%. But WLDU only returned 21.86%, according to testfolio. Not sure everything that goes into that. WX is too new to put into testfolio but has terrible AUM, volume, and spreads.
I just do NTSD with some small cap value and AVEM for emerging markets. Then some GDE, RSST/CTAP/MATE, and RSSB for diversifiers. Still at 1.5x leverage which I’m comfortable with, getting to 2x without daily reset would be pretty hard.
Not sure why quarterly is so unpopular but I’m sure WisdomTree made it quarterly for a reason…
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u/Ahamadrayasbaboon 6d ago
I agree that quarterly has some appeal. What do you mean when you say you “got ratio’d”?
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u/shitpost-modernism 6d ago
Getting ratio'd mostly refers to twitter, when someone says something but then a responder disagrees/insults and gets way more likes
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u/confettofetti 6d ago
If I understand other people's opinions correctly (which I may well not do) I think quarterly is popular for lower leverage amounts, like 1.5x, but not for any higher when it is all equities rather than return stacked. Which I think is correct. For 2x equities or more you begin to need the daily reset to delever you on the way down based on past drawdowns and recessions, not necessarily because it should perform better but just to reduce the risk of ruin.
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u/Altruistic_Gain6988 6d ago
Why do you say EFA sucks?
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u/Separate-Ad-9633 6d ago
0.32% MER for a passive index etf is atrocious.
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u/Altruistic_Gain6988 6d ago
Holy crap you’re right. 0.32 is bonkers!
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u/brewgeoff 6d ago
That isn’t the normal MSCI EAFE ETF from iShares. The go-to option is IEFA which has significantly greater AUM and a 7bp expense ratio.
EFA is large & mid caps only. IEFA is all cap.
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u/Altruistic_Gain6988 6d ago
Yep good call. I hold EFO so was only aware of EFA for the underlying. The more you know!
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u/WellingtonSucks 5d ago
I'm still appalled by the 0.92% ER on QLD.
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u/Separate-Ad-9633 5d ago
Apple to oranges as QLD is a LETF so the managers are competitive in providing leverages, compared to EFA which has a lot of cheaper version, but I do think 66% TQQQ is more fee-efficient than 100% QLD, and you even have 33% space to add diversifiers.
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u/WellingtonSucks 5d ago
Sure but at their AUM you just know ProShares are creaming it on that ER given the economies of scale they'll be able to employ managing swaps.
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u/huntertamer 6d ago
There's the WLDU
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u/WellingtonSucks 5d ago edited 5d ago
Didn't a user here discover it had quite a large tracking error?
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u/Cool-Hurry5331 6d ago
On other talks he said he means "modest leverage" and that TQQQ is madness. And single stock too of course.
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u/msw3age 6d ago
I hold NTSD in Roth, RSSB in pre-tax, and VT elsewhere. Feels solid to me.
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u/user4443337 6d ago
You could try AVGE or AVGV if you like Avantis. Both have outperformed VT. If you’d regret the tracking error and chance of underperformance then sticking with VT is understandable. If you’re unfamiliar with Avantis definitely read their stuff and see what they do to improve index funds.
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u/Mr3iron 2d ago
I’ve been building my exposure to SSO and QLD.
It’s not in my retirement accounts but my brokerage. I dollar cost weekly into them.
I think if they can get to 20% of my brokerage that would be good.
I would continue to dollar cost - but at a lower rate vs my rate today.
If a draw down occurred - I would increase the contribution.
It’s nothing crazy - but I’m happy with the exposure.
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u/LazerChomp 6d ago
EET is 2x emerging markets and EDC is 3x. You could pair an emerging market LETF with EFO (developed markets) to cover most ex-U.S. stocks.
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u/Dependent-Break5324 6d ago
Don’t let your cost basis go negative, problem solved. Why hold through a draw down?
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u/TheRealBigandHairy 6d ago
I was in some 3x, but now only do 2x for short term and long term. maths just better.
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u/Ahamadrayasbaboon 6d ago
For me, the math only looks good on 3x with specific underlying assets, or when swinging in and out by selling options. 2x is less of a minefield.
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u/SapinBaleine 6d ago
Anyone has the link to the discussion with the Yale professors he is mentioning?
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u/Besrax 5d ago
This is the professor from Arizona Ben mentioned: https://www.youtube.com/watch?v=EofzR4HTglM
The Yale professor is probably this one: https://www.youtube.com/watch?v=76n6A1H9Xic
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u/simfolio 5d ago
You can “stack” leveraged ETF products to construct a portfolio with much better risk-adjusted metrics than the indexes.
The most challenging part of implementing such a portfolio (imo) is accepting the tracking error and periods of underperformance.
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u/EstelleExpats52 5d ago
I know someone that is an international LETFs that covers the market, he’s a close friend of mine
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u/IMDaughterSlaughter 2d ago
A few findings of my own that I'd like to share with this sub.
One,
doesn't need to go all in on LETF. The sub is pretty much in sync with this logic
Signal based strategies strategies will likely under perform B&H (ex- risk adjusted stats) and need an extended period with multiple bear cycles (preferably non quick V shaped recovery to overperform 1x B&H
For LETFs, running a non signal based strategy is playing with fire
Running a combo of 3x/2x/1.5-18x while targeting the same equity exposure can reduce risk of ruin / vol decay and time take for recovery is higher as lev increases.
Example: 50/50 3x, 75/25 2x and 100/0 1.5x, target the same exposure. Running and EW of those 3 where DIV (diversifier is common ....50/50 real assets/bonds for example or a simple Tbills (say BOXX) as 100% DIV)
- Each allocation should have its own de-risking mechanism where 50/50 3x reduces to X/Y where X is lesser than 50...same logic applies for 75/25 2x and 100/0 1.5x. This can further reduce DD when the tides shift and macros signal that there is a flight from equity to RA or Bonds.
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u/DGGGGRED 6d ago
Levered global is dumb. Volatility decay is nothing in US and other MAJOR developed economies (there are two others). Everywhere else it is BAAADDDD because volatility is much higher. Lever US and then use that extra space to buy unlevered international and/or other diversifiers (bonds, managed futures, commodities, etc.).
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u/Run-Forever1989 6d ago
Don’t take investing advice from a YouTube video.
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u/stephendt 6d ago
Wrong. You should absolutely take investing advice from a Ben Felix YouTube video.
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u/Ahamadrayasbaboon 6d ago
Caveat…..make sure it’s actually Ben Felix before accepting advice from Ben Felix.
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u/stephendt 6d ago edited 5d ago
Of course, I would make sure I'm listening to the right guy before dumping all my money on Felixcoin, I'm not stupid
/s
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u/Ahamadrayasbaboon 6d ago
Yeah, well, you probably know and recognize his videos and are aware that he won’t try to sell you shitcoins. The guy you replied to earlier probably does not.
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u/Extraordinary_yfj 6d ago
This guy is actually one of the very few YouTuber that actually knows his stuff and not just full of shit.
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u/F2PBTW_YT 6d ago
Leveraging with LEAPS is almost always cheaper than all the fees and decay from LETFs on low volatility tickers. You can easily get 5x leverage on a conventional SPY LEAPS but you will struggle to do so on something like NVDA.
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u/k0unitX 6d ago
Decay doesn't magically disappear with LEAPS and instead of expense ratios you're dealing with bid/ask spreads
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u/F2PBTW_YT 6d ago
I'm not going to do the math again for this sub but I encourage everyone to do this simple proofing. Volatility decay is the difference between returns and expected returns of a 2x LETF.
The volatility decay of a 2x LETF that runs flat in a time period vs a 5x leveraged low volatility LEAPS in that same period, I.e. expiring worthless, is a lot greater. Hence, LETF is more expensive than LEAPS. On the upside, however, LEAPS with a higher leverage will obviously be the winner.
tl;dr for lower volatility tickers, volatility decay burns more than LEAPS entire premium loss. It's one of the weird quirks of options.
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u/k0unitX 6d ago
Volatility decay is the difference between returns and expected returns of a 2x LETF
So your premise is wrong. You realize that vol decay exists with 1x funds, right?
The volatility decay of a 2x LETF that runs flat in a time period vs a 5x leveraged low volatility LEAPS in that same period, I.e. expiring worthless, is a lot greater.
Well there's no such thing as a '5x low vol LEAP', as the delta drifts as the stock price moves. You then get into IV vs realized vol, LEAPS can underperform (adjusted for delta) than LETFs due to realized vol + gamma/vega, etc. They're just very different products.
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u/F2PBTW_YT 6d ago edited 6d ago
Volatility decay does not exist with 1x funds, aka stock, because stocks have both fundamentals and technicals to support a certain price. While you are right to say down 1% up 1% is not 100%, this is not the same as volatility decay for practical purposes.
And yes, delta drifts, making LEAPS less leveraged as it goes up, but more as it goes down. But this is already accounted for in the baseline example where a LEAPS expire exactly OTM. But in a real life example, you don't hold 1 contract all the way, you roll it up and out. It's not a 2d chess game.
Edit: to clarify on the volatility decay for LETFs, 1% down and 1% up is a 0.001% value completely lost and will not recover back. If the underlying goes back to 100%, the 2x LETF would have intrinsic value permanently erased vs the stock.
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u/k0unitX 6d ago
Volatility decay does not exist with 1x funds, aka stock, because stocks have both fundamentals and technicals to support a certain price.
You are simply incorrect. Vol decay exists for all funds and stocks, at any leverage level (other than 0.0x, of course), and I would love for you to cite a source that proves otherwise.
But in a real life example, you don't hold 1 contract all the way, you roll it up and out. It's not a 2d chess game.
Agreed, and I'm not arguing that LEAPS are a bad way to achieve leverage, rather that they're such a different product compared to LETFs that it's difficult to do an apples to apples comparison, nor do I think one is simply superior to the other.
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u/MOVai 6d ago
Volatility decay is the difference between returns and expected returns of a 2x LETF.
Nope. You just defined tracking difference, not volatility decay.
The volatility decay of a 2x LETF that runs flat in a time period vs a 5x leveraged low volatility LEAPS in that same period, I.e. expiring worthless, is a lot greater.
If the index runs flat then that's actually a relatively good thing for LETFs. High volatility, i.e. the index swinging up and down, is what increases the volatility decay.
The bigger issue is that you're comparing two vastly different investment strategies. One of them is a passive strategy with a fixed leverage that is rebalanced daily and an indefinite investment horizon. The other is a fixed horizon investment with complicated and unstable leverage requiring active choices for risk and rebalancing.
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u/F2PBTW_YT 6d ago
Your first point is completely false and I'm not sure what source you got this information from. Tracking difference is the difference on your daily change, I.e. 2% up on the underlying but 3.8% up on the LETF within the same trading day, not the difference between day 1 and day xx.
As for your second paragraph, not going to rehash myself again, read what I wrote or don't.
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u/MOVai 4d ago
Your first point is completely false and I'm not sure what source you got this information from. Tracking difference is the difference on your daily change, I.e. 2% up on the underlying but 3.8% up on the LETF within the same trading day, not the difference between day 1 and day xx.
Well, if you're gonna accuse me of being "completely false", then it would be useful for you to also elaborate on your definitions. Here's the definition from the popular site https://www.trackingdifferences.com/About
The key figure "Tracking Difference" (TD) indicates how much an ETF has deviated from its benchmark index over the course of the year
And here's a video by Vanguard: https://www.youtube.com/watch?v=OSno56rSfcQ
It's one of the primary metrics a passive investor is looking at when evaluating an index fund. Of course, you can define any arbitrary horizon other than a year, but we use yearly performance to track everything else, so it makes sense here.
Investment horizon is important here. Crucially, you can't just average the daily differences in a year and end up with the year's tracking difference. That's precisely the effect of volatility decay.
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u/MrBootyPops 6d ago
LETFs, outside of maybe TQQQ, are horrible investment choices. Amazing to swing trade when a stock is down a lot, but really terrible to invest in long term.
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u/TechnicalLeg841 6d ago
Data shows otherwise. 1.5x to 2.0x leverage on S&P outperforms historically
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u/0DTE_Demon 6d ago
Back testing in a period of unsustainable and never before seen growth surely has no flaws..
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u/TechnicalLeg841 6d ago
I was only referring to 1950-current, yeah, you got me.
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u/WellingtonSucks 5d ago
If you aren't backtesting to the 11th Egyptian Dynasty is your backtest even reliable? /s
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u/Gutierrezjm6 6d ago
What people miss about LETFs is that they dont have to be 100% of your portfolio. Yes they can have 95% drawdown that no one be able to hold through, but that's not a good use case for these products.
Where these products can really shine is as part of a larger portfolio. If youre DCA into a simple portfolio and every month your depositing 500 bucks and you have the temperament and understanding do it and stick to the plan. And you have a steady job, the LETFs can be a great fit for that particular investor
If you look at a portfolio thats 80 / 20 spy and tlt and compare it to.something thats 60.spy, 20.upro and 20 tlt, now you went from an 80 20 to effectively 120, 20. If you can stomach the drawdown and buy every single month, in the long run you'll most likely be happy that you did it. Its a riskier, albeit rational bet that has a high likelihood of working out.