Thursday, January 24, 2019

If the market slowly falls 20%, the short fund is up 24.39% due to daily compounding (21.83% log return)
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Similarly, in an upward market the fund will not perform as badly as expected, down only 16.95% against a 20% gain:

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This may look and sound great, but markets never work like this. In volatile markets the total return of the fund will start to be affected negatively. In the example below, the underlying goes up and returns back to it's starting point, but the fund is now down .36%.  If your holding period is for weeks or months, the impact will only get bigger.  
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This affect can be magnified dramatically in the leveraged funds. Even though the underlying had a total return of 0% the fund will be down 2.16%.
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