Do leveraged and inverse funds seek to achieve their target returns for more than a day?
Most leveraged and inverse funds seek to achieve their target returns for a single day. Returns over periods beyond a day can be significantly lower or higher than the index return times the fund multiple. Nevertheless, although no one can predict future performance, Joanne Hill, PhD, and George Foster, CFA, conducted an historical study that showed a high likelihood of approximating the daily target over short periods. The shorter the period, and the lower the volatility of the underlying index, the more likely returns were to approximate the daily target. Longer and more volatile periods tended to show a greater deviation from the daily target. Using historical data, a model based on 2x the daily return of the S&P 500 index showed a 90% likelihood of producing a return between 1.75x and 2.25x the index return over any 30-day period over the last 50 years. (Models based on an index with higher volatility would have deviated more.)1 Four factors significantly affect how close daily com
