Beta Slippage on ETF

📊 Investing
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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:

example positive compounding
example positive compounding1545×901 94.3 KB

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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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image1540×845 89.2 KB

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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…

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

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