Leveraged ETF's: Do they decline more with lots of volatility?
I've been looking at charts of inversed leveraged funds over several months. I bring up the index they track, then bring them up as a comparison, everything being identical (type of graph, etc). When there is little or normal volatility, especially before late February of this year they almost perfectly mirrored the fund they were tracking. Yet when our present rollercoaster market started a few weeks back they have declined markedly compared to what they were tracking. Its very easy to see on any chart. So I'm wondering if the problem is they have to rebalance more often in a more active market and the costs of this rebalancing is what is responsible for the dive in price? For instance I'm looking at PSQ which inversely tracks SPX (S&P 500). In the beginning of April of 2018 you see the price of PSQ is about $28.50. But if you look at the chart you'll notice that PSQ doesn't go up as much as you'd think it should around late January. By mid February its quite a bit worse. Around Feb 20 its at its lowest and its about 5% lower than you'd think it would be. The lowest point of the SPX seems to be on March 23. That's where PSQ should be pretty high but its only about $29.70 at its highest. I would have thought it would be $34-35. I'm using Think or Swim charts so I'd presume them to be accurate but with all the deficiencies I've noticed in that ancient platform nothing would surprise me anymore. (They keep on saying they are revising it but nothing seems to change.)
What am I missing here? Is it volatility that requires more rebalancing so additional costs come into play? Because this is a huge difference in a rather short period of time that I didn't see all year before this mess started.
What am I missing here? Is it volatility that requires more rebalancing so additional costs come into play? Because this is a huge difference in a rather short period of time that I didn't see all year before this mess started.