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The Hunt for a Leveraged Value ETF – 3 Contenders for 2022

Last Updated: March 22, 2022 3 Comments – 3 min. read

So you like leveraged ETFs and you like Value. Can we combine them? Here I discuss the current options for a leveraged value ETF.

Disclosure:  Some of the links on this page are referral links. At no additional cost to you, if you choose to make a purchase or sign up for a service after clicking through those links, I may receive a small commission. This allows me to continue producing high-quality, ad-free content on this site and pays for the occasional cup of coffee. I have first-hand experience with every product or service I recommend, and I recommend them because I genuinely believe they are useful, not because of the commission I get if you decide to purchase through my links. Read more here.

Contents

  • Why a Leveraged Value ETF?
  • IWDL – ETRACS 2x Leveraged US Value Factor TR ETN
  • UMDD – ProShares UltraPro MidCap400
  • UDOW – ProShares UltraPro Dow30
  • Conclusion – Where To Buy These Leveraged Value ETFs

Why a Leveraged Value ETF?

If you’ve landed on this page, hopefully leveraged ETFs require no explanation. If they do, go read this post first explaining how they work. Basically, we’re paying a fee to increase exposure (and risk) in the portfolio within a single fund. I listed some examples of popular leveraged ETFs in this post.

And in doing so with stocks, e.g. with something like UPRO, a 3x S&P 500 fund, we also know we almost certainly want to diversify across assets and hold some bonds too, such as in the case of the famous Hedgefundie strategy, and like I showed here for TQQQ. In short, holding leveraged bonds mitigates the portfolio’s volatility and risk when holding leveraged stocks.

But if you know anything about factor investing, we also know that we expect Value stocks to beat Growth stocks, and we get a convenient diversification benefit in overweighting them. That is, those independent equity risk factors tend to be uncorrelated to one another; they move at different times. As a result, I’d say it is reasonable to seek out a leveraged value ETF to further fortify your leveraged strategy. Others apparently feel the same, evidenced by the number of searches I get on this very website for such a product.

Unfortunately, at the time of writing, there is no leveraged value ETF. Period. However, several funds exist that may still fit the bill for a somewhat naive proxy.

IWDL – ETRACS 2x Leveraged US Value Factor TR ETN

IWDL is probably the closest thing we’ve got to a true leveraged value ETF. This fund launched in February, 2021. It seeks to provide 2x the quarterly performance of the Russell 1000 Value index and has an expense ratio of 0.95%.

Unfortunately, there are a couple immediate drawbacks with IWDL. First, you may have noticed that it’s not an ETF at all. It’s an ETN. Recall that ETNs carry their own unique risks compared to ETFs. Secondly, IWDL only has a terribly low $30 million in assets, meaning potential liquidity issues and risk of closure. Lastly, it’s only 2x leveraged, meaning you’d need a higher allocation of it alongside 3x funds.

UMDD – ProShares UltraPro MidCap400

UMDD from ProShares seeks to deliver 3x daily exposure to the S&P MidCap 400 Index. The fund launched in 2010 but still only has about $50 million in assets.

While this may sound like a simple leveraged mid cap fund, the earnings screen from the underlying S&P index conveniently provides positive loadings across the Value and Profitability factors. We also obviously get exposure to the Size factor by holding mid caps. One downside to consider is that the greater volatility of mid caps means volatility decay of the fund is going to hurt worse.

UMDD has an expense ratio of 0.95%.

UDOW – ProShares UltraPro Dow30

UDOW from ProShares seeks to deliver 3x the daily returns of the Dow Jones Industrial Average. This fund launched in 2010 and boasts nearly $1 billion in assets.

UDOW and UMDD have about the same Value exposure, but UDOW has greater loading on Profitability, as well as a slightly positive loading on the Investment factor.

An obvious downside of this fund is that at the end of the day, the Dow is just a price-weighted index of only 30 arbitrarily chosen large cap companies, which is pretty strange. As such, it does not provide well-diversified exposure to U.S. large caps.

UDOW has an expense ratio of 0.95%.

Conclusion – Where To Buy These Leveraged Value ETFs

These leveraged products should be available at any major broker. My choice is M1 Finance. The broker has zero trade commissions and zero account fees, and offers fractional shares, dynamic rebalancing, and a modern, user-friendly interface and mobile app. I wrote a comprehensive review of M1 Finance here.

Be sure to read up on the potential pitfalls of using leverage before blindly buying in. Again, leveraged ETFs are better suited for experienced investors. Remember that using leverage – especially in the form of leveraged ETFs – increases portfolio risk and the potential for greater returns, but also the potential for greater losses. Do your own due diligence and read the fine print on these products.

Do you employ a value tilt in your leveraged strategy? Let me know in the comments.


Interested in more Lazy Portfolios? See the full list here.

Disclaimer:  While I love diving into investing-related data and playing around with backtests, I am in no way a certified expert. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. The information on this website is for informational and recreational purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. Do your own due diligence. Past performance does not guarantee future returns. Read my lengthier disclaimer here.

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About John Williamson

Analytical and entrepreneurial-minded data nerd, usability enthusiast, Boglehead, and Oxford comma advocate. I lead the Paid Search marketing efforts at Gild Group. I'm not a big fan of social media, but you can find me on LinkedIn and Reddit.

Reader Interactions

Comments

  1. Russ Abbott says

    January 15, 2022 at 8:03 pm

    P.S. If you run a chart of IWDL against SPUU (2X S&P500) it turns out that they track each other surprisingly well.

    Are you sure that IWDL “seeks to provide 2x the quarterly performance of the Russell 1000 Value index” and not 2X the *daily* performance, which is what most other leveraged funds do?

    Reply
    • John Williamson says

      January 15, 2022 at 8:47 pm

      P.S. If you run a chart of IWDL against SPUU (2X S&P500) it turns out that they track each other surprisingly well.

      No they don’t.

      Are you sure that IWDL “seeks to provide 2x the quarterly performance of the Russell 1000 Value index” and not 2X the *daily* performance, which is what most other leveraged funds do?

      Yes.

      Reply
  2. Russ Abbott says

    January 15, 2022 at 7:51 pm

    I found this page while I was looking for a leveraged value ETF. I’m glad you did the research — and disappointed that you didn’t find anything better.

    Reply

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