Let's briefly discuss $SPDR S&P Biotech ETF(XBI)$ and $Direxion Daily S&P Biotech Bull 3X Shares(LABU)$ 、$ProShares UltraPro QQQ(TQQQ)$.
There are two main reasons for the high attrition of leveraged ETFs: 1. The underlying assets are a basket of futures, options and total return swaps, with daily settlement of gains/losses; 2. High management fees (~0.75%).
The fundamental reason LABU can't compare with TQQQ is that XBI's valuation, EPS growth, and dividends/buybacks can't keep up with QQQ over the long term. In other words, XBI's component stocks lack long-term endogenous growth and shareholder return capabilities, and are too affected by external factors (interest rates, policies) - these constitute the 'attrition'.
QQQ's annual EPS growth and buybacks have driven its net value steadily northward, creating a slow bull market.
Leveraged ETFs are particularly suitable for slow bull varieties: valuation, EPS growth, and business models all need to be excellent.
Below is the net value curve of LABU and TQQQ since 2018.
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