Are there strategies that can increase the chance of achieving returns close to the daily target over time?
Yes. Academic research2 conducted on 2x and -2x multiples supports the idea that a basic rebalancing strategy for leveraged and inverse funds may help an investor to achieve returns close to 2x or -2x the index return over time. This rebalancing strategy uses a calculation to determine the amount to add to or reduce the investment in a leveraged or inverse fund, such that the investment exposure held is in line with the targeted return for the period. Rebalancing can be performed at fixed time periods (e.g., weekly or monthly), or it can be triggered when a specified return threshold is reached. Investors may need to rebalance more frequently in funds with higher index volatility, inverse multiples and greater leverage. A rebalancing strategy will involve transaction costs and can generate tax consequences. Rebalancing does not guarantee specific future results and may result in investment losses.
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