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Friday, December 8, 2017

Russell 2000 IWM and TNA

After looking at the Nasdaq, lets jump right into the iShares Russell 2000 ETF (IWM) and its triple-leveraged cousin the Direxion Daily Small Cap Bull 3X ETF (TNA). We will compare these to the SPY.

TNA, like all the other leveraged broad-based ETFs, has been on fire for years. The 3X variety has been triple on fire.  As with the other 3X funds, TNA is marketed as a short term vehicle with the goal of delivering, for a day, 3X the return of the Russell 2000 index of small cap stocks. Brokers caution individual investors with higher margin requirements for these kind of ETFs.

IWM, the largest Russell 2000 ETF began trading 5/26/2000. The TNA inception date is 11/19/2008. For fair comparisons our analyses begin with the TNA start date. Here are the results.


IWM and SPY look like straight lines compared to TNA.
Continuously compounded returns follow:

Annualized Returns
as of 12/1/2017
   TNA      IWM     SPY
1 month 94.8% 34.3% 31.6%
3 month 99.0% 35.1% 27.9%
6 month 51.1% 19.3% 17.9%
1 year 43.3% 17.0% 20.6%
3 year 21.5% 10.6% 10.2%
5 year 32.3% 13.9% 14.5%
Since TNA Inception 26.1% 14.4% 13.7%



*Since TNA Inception 11/19/2008 to 12/31/2008
**Year-to-date 12/1/2017

TNAIWMSPY
Avg. Ann'l Returns26.1%14.4%13.7%
St. Dev. of Ann'l Returns37.4%11.8%7.9%



Risk and Reward
as of 12/1/2017
           TNA           IWM           SPY
3 year mean21.5%10.6%10.2%
3 year standard deviation42.2%13.8%9.6%
5 year mean32.3%13.9%14.5%
5 year standard deviation33.4%10.8%8.5%


Conclusions

First consider IWM versus SPY. They are comparable in returns. Note SPY beat IWM 5 of the 10 periods. IWM's average return is a little higher but the risk is significantly higher.

Now look at TNA. It comes up short of 3X in the gain department, though still a significant gain all around. Returns ARE spectacular. But look at that risk! TNA's risk is more than 3X the IWM risk and 4X greater than SPY.  Again, buckle your seat belt if you go for TNA's higher returns.

Feel free to post comments.

Disclaimer: The above is not investment advice, is for information purposes only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors.

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