The Rational Reminder Podcast · Thursday, October 22, 2026
Chris Murray and Marco Sammon explained the mathematical components of long-horizon leveraged ETF returns, identifying a 'convexity bonus' from daily resets that works in favor of the ETF when the underlier moves positively, alongside a 'volatility drag' that multiplicatively reduces wealth based on variance.
“So the one that makes it do better is what we call a convexity bonus... If the underlier is up 20% over a year, the 2x doesn't get 40, it gets 44% before volatility drag.”
“On the downside is something that we call volatility drag... And as the underlier has more and more variance, that multiplicatively reduces the wealth of the 2x levered ETF.”