Hi Allen, Re: Volatility capture as a single goal..........
As your short test demonstrates, the "ultra" type funds with their heavy leveraging (and expenses) do manage to produce as advertised. They have the ability to daily manage about 2X the underlying index.
This is great if there are stitched together enough days in a row in the same direction. With standard AIM settings we need Portfolio Control plus or minus about 15% to trigger the first trade event. After that it usually takes about an additional 5% move in the same direction to consummate the next consecutive trade. It then takes a 25% to 30% move in the opposite direction to generate the opposite trade.
You could add another column or so to come up with the cumulative effect of the volatility to see how often the fund achieves the initial trades and subsequent trades. This could also help document how often reversal trades are generated. It could also document if there are more reversal trades than a standard inexpensive index fund tracking the same index.
You could also use the Zig Zag feature in StockCharts.com to visualize essentially the same thing.
So, it can be demonstrated that, short term, the leveraged funds can produce a greater number of potential AIM trade events. It remains to be seen if the longer term effects are beneficial (more than one full cycle). Leveraged funds could potentially be used for Price Appreciation if timed properly. Most don't produce any dividend, I don't believe, so that part of one's goals is negated.
I have worked with some 1.5X mutual sector funds since 2010. Results are good, but not spectacular. Further, that portfolio of 10 funds has yet to go through anything but a relatively mild downward reversal (2011). So, I've not as of yet figured out if they will do what is hoped, 1) give better price appreciation over time and 2) better profitable volatility capture over time.
