I want to take another look at mimicking UPRO going back to 1913. Of course, UPRO didn’t arrive until around 2010, but with a little math and coding we can simulate what a similar set of holdings may have been like since 1913.
In blue you can see actual UPRO. In green you can see an estimate of SPXTR (the total S&P 500 return with dividends reinvested). In red we can see a synthetic UPRO calculated using 3 times the monthly return of SPXTR. An obvious problem with that is that it doesn’t account for leverage costs of expense ratios. To make a simple estimate as shown in yellow I have taken the SPXTR monthly return, multiplied it by 3, subtracted a 1% annualized expense ratio, and subtracted 2 times the ten year treasury yield.
Now I know this isn’t a perfect calculation for a synthetic UPRO since institutions borrow at shorter term rates and the fund uses a daily multiplier not a monthly one. This is just a way among many of estimating and I have chosen inputs that will let us go back to 1913. The 2 year yield doesn’t go back that far in my data set.
Now that we we can see the rough estimate is atleast in the ballpark let’s look at the full length view going back to 1913 – which is the first year for US10Y data on tradingview.
Now I have swapped out UPRO to SPX so that tradingview can calculate back to 1871, but since we have no interest rate data prior to 1913,
It is really easy to see that in red we have a overly optimistic result since we didn’t include borrowing costs or expense ratio fees.
In yellow we can see that using leverage blindly doesn’t seem to result in great results. In this case it drastically underperformed SPXTR.
If someone is going to use leverage I think it is crucial to use it tactically and with diversification of assets. Leverage alone isn’t likely to make for a good long-term result.
Thanks!
Disclaimer
This is not investment advice for you. This website is designed to talk about investments but it is not designed to give you personalized investment advice. This site contains generic information that does not have the capability of taking your personal risk tolerance, goals, assets, or other factors into account. Therefore, this site and all of its related content is for entertainment, informational, and educational purposes only.
The owner of PatienceToInvest.com is also a trade leader on Collective2.com. We may receive compensation by promoting some collective2 strategies over others. Should you decide to make or avoid any investments or use any service due to the information on this site or related information you assume full responsibility and risks and will not hold howiinvest.com it’s associated sites or its owners responsible. You also acknowledge investing is risky and can result in the loss of all your capital and even more than your original capital in some cases.
How I Invest 