Leveraged ETF Decay Rankings
Leveraged ETFs reset their leverage every single day. That means if the underlying index drops 20% and then fully recovers, a 2x fund does not recover — the gap left behind is volatility decay. This page ranks leveraged semiconductor and software ETFs by how much value they bleed versus what their leverage promises, so you can see which ones are safest to hold beyond a few days.
Why Leveraged ETFs Decay
The daily reset math
A 2x fund doubles the index's return each day, not over your holding period. If the index falls 10%
one day (fund: −20%) and rises 11.1% the next to break even (fund: +22.2%), the index is flat but the
fund sits at 0.80 × 1.222 = 0.978 — down 2.2%. Every round trip in the underlying
shaves a little off the leveraged fund, and choppy markets do it over and over.
Volatility drag
The expected bleed grows with the square of volatility: drag ≈ L(L−1)/2 · σ²
per period, where L is the leverage and σ the underlying's volatility. That is why 2x/3x funds on
volatile single stocks and niche baskets (like lithium or high-beta software names) decay far faster than
leveraged funds on calmer, broader indexes — even when both track their index perfectly day to day.
When leveraged ETFs are OK
- Short holding periods — over a few days the daily reset barely matters.
- Strongly trending markets — compounding in one direction can actually beat L× the index (positive decay).
- Low-volatility underlyings — drag scales with σ², so calm indexes bleed the least.
Avoid holding high-leverage funds on volatile underlyings through sideways, choppy markets — that is the worst case, and it is exactly what the Decay column above measures.