Why do leveraged and inverse funds “reset” their exposure daily?
Resetting exposure in a leveraged or inverse fund is designed to provide constant results to investors for each day the markets are open. If these funds did not reset their exposure each day, the leverage of the funds would vary each trading day. The exposure of the fund to its benchmark, over time, could easily become very small (e.g., less than 1x) or very large (e.g., more than 5x). It is not possible for an open-end fund that does not reset its exposure each day to provide a specified, constant daily leverage level regardless of the time the investment in the fund is held.
