Beta Slippage on ETF

Beta slippage is a multi-day tracking difference found in leveraged ETF or ETP. Leveraged ETF must rebalance over a predetermined time frame. For example a daily leveraged ETF/ETP rebalances at the market close each day. This means the price movements are calculated on a percentage basis for that day and that day only. Due to rebalancing, the daily leveraged ETF does not track true to its underlying index over a multi-day period. This structural tracking difference caused by the leveraged ETF need to rebalance is defined as beta slippage.

Here is an example of positive Beta Slippage:

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Here is an example of negative Beta Slippage.
Performance of Diageo by 3x should be +20%… due to the volatility, it is only +14%

And of course, it could be negative.

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Here a reminder of how does compounding impact works and what are the risk related to it. Of couse, using beta slippage can be in your favor or not…

for your information,
Beta slippage and compounding are the same things :wink: