Consider the six year period from 7/1/2006 through 6/30/2012. The market had some up years and down years over this period, but SPY moved higher by about 20% with dividends reinvested.
Over that same period of time, SSO fell by 16.4%.
I believe SSO successfully doubles the daily swings (less their expense ratio), so the sequence of returns shouldn't be important to this. In an extended sideways market with high volatility, the structure of the fund will underperform SPY, even if there are no years with a large drop involved. We haven't seen a "sideways" market any time recently, but I wouldn't be shocked if we were to end up in one.
Check out VEUSX since inception, for example, or even over the post-GFC period. Some gains over time, but a lot more muted than what you've seen with the US markets over that same period. The combination of low/moderate gains and high volatility is a death sentence for a levered strategy like SSO, and those characteristics can persist for decades.
Again, none of this has anything to do with fear or volatility. I'm intentionally NOT mentioning those aspects because I believe they have distracted you from the more fundamental issue. Even if we take as a given that markets move higher over long periods of time (Japan would beg to differ), there are certain structures in which SSO loses while SPY gains.
If you replace "must head higher than SPY" with "usually head higher than SPY", then I would agree. But "must" is a strong word that is not warranted here. |
