How come we've missed this? How would you characterize the risk
Guy R
QQU is an ETF that is 2X levered to the performance of the Nasdaq 100. Thus, on days when the market is up, it is up 2X as much, and same with on declining days. Historically, it has done well due to the strong performance of the Nasdaq 100, although, this means investors would have to experience large drawdowns compared to the broader markets (ie. in 2022 QQU declined over 60% while QQQ declined about 35% or more).
It is not just the amplified volatility that can be problematic, but there are two other factors to consider for investors looking to hold for a 'long-term' position.
1) Leverage returns work against an investor due to daily fluctuations and volatility decay. ie. If the QQQ declines 10%, QQU declines 20%, but in the event the QQQ rises 11% the next day (breakeven), QQU rises 22%, which is not enough to bring it back to breakeven (25% is required).
2) Daily rebalance. These ETFs need to rebalance daily which requires buying high and selling low in volatile markets.
We would consider the risk to be quite substantial, and in general, these are meant to be held for very short periods of time.