The question
My 3x fund lost far more than 3 times the index. Was it badly run, or is something else going on?
The idea
- Lesson 4 showed that a daily fund's result depends on the path. Any period result splits into three parts:The multiple × the index's move. What the name seems to promise.The path effect. What compounding each day's 3x move adds or takes away. Choppy, back-and-forth days take away; this loss is often called decay. A steady trend can add.The fund's gap. The fund's return against a perfect 3x-each-day fund: fees, borrowing costs and trading slippage. Below zero means it fell short.
- Only the third part is the fund's doing. ETFIQ's 3-Month Tracking Score ranks it among funds with the same multiple and direction (100 is best).
Worked example
The 5 steps beside the drawing at the top work this through on ETFIQ data. Point at a step to light the part of the drawing it describes.
Three 3x funds, Aug 11, 2026 to Nov 10, 2026.
| Fund (index) | Index move | 3 × the move | 3x each day, compounded | Fund |
|---|---|---|---|---|
| LABU (XBI, biotech) | −1.90% | −5.71% | −13.83% | −15.80% |
| SOXL (SOXX, chips) | −17.62% | −52.87% | −55.27% | −57.82% |
| TQQQ (QQQ) | −5.99% | −17.96% | −20.38% | −22.43% |
XBI swung hard (volatility of 34.1% at a yearly rate) but ended near where it started. That back-and-forth is where decay comes from. SOXX swung even more (50.3%) but fell a long way in one direction, which limited the drag. QQQ swung least (22.8%), so TQQQ's path effect was small.
LABU's fee is 0.96% a year, about 0.24 points over 3 months. The other 1.7 points is the cost of holding 3 times its cash in exposure, plus daily rebalancing.
The ranking follows the gap alone. SOXL's −2.40 path effect and LABU's −8.11 don't count, because any 3x fund on the same index would have had them too.
The common mistake
"A 3x fund that lost more than 3 times the index is badly run." LABU lost 10.09 points more than 3 times XBI's move, but 8.11 came from the path, which any 3x XBI fund would share. Judge the fund on its gap.
Check your understanding
Pick an answer to see why. Two of three right passes the lesson.
1. What does the 3-Month Tracking Score rank?Answer: D. The fund's return against its daily multiple, compounded. the gap is the only part the fund controls. Not B: every fund on the same index and multiple gets the same path effect.2. Over 3 months an index swings sharply up and down but ends flat (hypothetical). Before any costs, what does a 3x daily fund likely show?Answer: C. A loss. back-and-forth days compound into decay, as XBI's did for LABU. Not A: 3 × 0% is the naive promise, not the compounded result.3. An index fell 2%; its 3x fund's daily multiple compounded was −12%; the fund returned −13.5%. What were the path effect and the fund's gap?Answer: A. −6 points and −1.5 points. 3 × the move is 3 × −2% = −6%; path: −12 − (−6) = −6; gap: −13.5 − (−12) = −1.5. Not B: −10 subtracts the index move, not 3 times it.
Takeaways
- Split any leveraged result into three parts: 3 × the move, the path effect and the fund's gap.
- Choppy markets create decay; a steady trend can offset it.
- Compare leveraged funds on their gap, as the 3-Month Tracking Score does.