What is TMF, a 3x Leveraged U.S. Long-Term Bond ETF? Determining when to buy and how it differs from TLT and EDV

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This is only a record of my personal analysis and the contents may contain errors or information that differs from the actual situation. Please understand in advance when viewing this site.

Introduction.

In 2024, interest rate volatility is expected to play a major role in the U.S. investment landscape. This expected volatile environment is driving interest in the bond market.

In the past, I have stayed out of fixed income investments and focused primarily on other investment classes such as stocks and commodities.

However, the inflationary measure adopted by the U.S. Federal Reserve System (FRB) to raise interest rates in response to the coronavirus pandemic has reached a milestone, and a new investment environment is forming in which interest rates are expected to decline.

In this environment, we would like to reconsider our approach to bond investing and consider a strategy of profiting from interest rate movements through bond ETFs rather than directly buying bonds.

Here, we decided to focus on TMF, a long-term U.S. Treasury bond ETF that offers 3x leverage, and take a deep dive into its potential returns and risks.

Before,TLT (iShares U.S. Government Bonds 20+ Year ETF)Based on our experience in studying the TMF, we have conducted a detailed study of the characteristics and investment merits of the TMF, a leveraged ETF.

Find out if TMF is right for your investment style in this article.

What are the characteristics of TMFs?

TMF is an ETF with the following characteristics

• The official name of TMF is "Direxion Daily 20+ Year US Treasury Bull 3x ETF"
• TMF is,Leveraged ETF targeting 3001 TP3T of the daily performance of the ICE U.S. Treasury 20+ Year Bond Indexand means that it reflects the daily movements of the index amplified by a factor of three.
• TMF invests in U.S. Treasury securities with a remaining maturity of 20 years or more. This includes fixed-rate U.S. dollar-denominated bonds with a face value of at least $300 million, excluding amounts held by the Federal Reserve System.
• By using leverage,TMF has high return potentialbut because small movements in the market are largely reflected,There is also a high risk of short-term price volatility.
• TMF is suitable for trading strategies that take advantage of short-term market movements due to its leveraged strategy,May not be suitable for long-term investment.

TMF is an ETF especially suited for investors who are sensitive to market movements or who wish to take advantage of short-term trends, but it carries a high level of risk and requires a thorough risk assessment before investing.

Learn more about ETFs here.
What is the U.S. Continuously Growing Dividend ETF VIG? - What is an ETF?

The difference between long-term U.S. Treasuries and short-term bonds is explained in detail here.
What is TLT - What is a long-term US Treasury bond? How does it differ from a short-term bond?

What is TLT, a U.S. bond ETF? Why and why it is recommended during a period of falling interest rates?

This section delves into the features of TLT, a long-term U.S. bond ETF, the advantages and disadvantages of investing in TLT, and the relationship between bonds and interest rates. Learn about the relationship between interest rate trends and TLT price movements, the impact of the Fed's interest rate policy, and how to deal with currency risk to help those considering investing in TLTs determine the right time to invest in TLTs.

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What is a Leveraged ETF? How do they work?

Leveraged ETFs are financial instruments designed to provide greater returns than regular ETFs.

These ETFs are intended to provide long-term or short-term exposure to a specific benchmark index (e.g., S&P 500 or Nasdaq 100).

How Leveraged ETFs Work

• Leveraged ETFs are,Use derivatives (financial derivatives) to amplify the fluctuations of a benchmark index by a factor of 2 or 3.By this,Aim for greater returns on index movements (or vice versa).
• Typically, leveraged ETFs use additional capital in addition to investor capital to provide a higher level of investment exposure to the index. For example, it is common to maintain $2 or $3 of index exposure for every $1 from the investor.
• Leveraged ETFs are,The total index exposure is adjusted (rebalanced) on a daily basis in response to price fluctuations of the reference index, thereby maintaining a constant leverage ratio even if the index rises or falls.
• Leveraged ETFs are,Additional costs may be incurred for rebalancing.There is also the risk that expected returns may not materialize due to market fluctuations.

Cautions for Leveraged ETFs

• Leveraged ETFs are designed to take advantage of short-term market movements,May not be suitable for long-term investment.
• Market volatility and leverage costs may prevent expected returns over the long term.

Leveraged ETFs are basically not suitable for long-term investment.

Therefore,Some estimate of timing and investment period should be considered for holding.

What are the specific reasons why TMF is not a good long-term investment?

• TMF aims to amplify performance by a factor of three, meaning that an 11-TP3T rise in the index would cause TMF to rise by about 31-TP3T, but similarly, an 11-TP3T fall in the index would cause TMF to fall by about 31-TP3T.
• Leveraged ETFs are particularly sensitive to times of market instability because daily returns accumulate through the compounding effect. For example, if the market moves significantly up or down, the value of the TMF can rapidly decline. This.compounding effectHe says.
• Leveraged ETFs adjust (rebalance) their portfolios at the close of each market day to maintain a given leverage ratio.In the long run, this daily rebalancing causes ETF performance to deviate from the performance of the base index due to market fluctuations.
• By using three times leverage, TMF can aim for higher returns, but with that comes the risk of amplifying losses by a factor of three.

In brief,TMFs are instruments designed to take advantage of short-term market movementsand, by their nature, are not suitable for long-term investment due to their long-term decline in value and significant risk.

Why is TMF so sensitive to changes in interest rates?

The reasons why TMF is sensitive to changes in interest rates are

• TMF invests in U.S. Treasuries with a remaining maturity of 20 years or more. Long-term bonds are particularly sensitive to changes in interest rates; when interest rates rise, existing lower-rate bonds lose their attractiveness and their prices fall. Conversely, when interest rates fall, the prices of these bonds rise.
• Rising interest rates tend to lower the price of bonds. This is because new bonds are issued at higher interest rates, which lowers the relative value of existing low interest rate bonds in the market.
• Because TMFs use three times leverage, the impact of even small changes in interest rates is greatly amplified. Even a small increase in interest rates can cause a significant drop in the value of a TMF.

Investing in TMFs is suitable for investors who closely monitor interest rate trends and are able to react quickly to market fluctuations. It is important to understand the risks associated with interest rate fluctuations and to have appropriate risk management strategies.

Learn more about the relationship between long-term bonds and interest rates.
What is TLT - a simpler explanation of the relationship between long-term credits and interest rates?

Who is TMF's management company?

TMF is,It is operated by Direxion.

Direxion is a financial services firm specializing in leveraged and inverse ETFs.

Direxion's products are suitable for short-term trading strategies, such as leveraged products and inverse (reverse movement) ETFs, which are designed to profit from the daily fluctuations of the market.

What is TMF's expense ratio?

The expense ratio for TMF (Direxion Daily 20+ Year US Treasury Bull 3x ETF) is 1.061 TP3T.

This expense ratio represents the annual expenses associated with the management of the ETF and is calculated as a percentage of the total assets invested.

Expense ratios include operational, administrative, and other operating expenses.

The expense ratio of an ETF like TMF is part of the cost paid by the investor and is one of the factors that affect the overall return of the investment.
The expense ratio of 1.061 TP3T is in the relatively high category.

However, bond ETFs such as TMF may not need to be viewed as such an important indicator if they are considered as a short-term strategy that concentrates on investing during periods when interest rates are expected to decline, rather than as a very long-term investment.

What is TMF's dividend yield?

The dividend yield on TMF (Direxion Daily 20 Year Treasury Bull 3X Shares) is currently 3.55%.

The yield is the total annual amount of dividends paid by the ETF to investors divided by the ETF's share price.

Since dividend yields fluctuate depending on market conditions and ETF performance, it is important to check the latest information when investing.

The yield is not significantly different compared to other bond ETFs

• TLT: 3.38% approx.
• EDV: 3.55% approx.

The dividend yield shows the percentage of dividends paid by the ETF to investors and represents the ratio of dividends to the price of the ETF.

In the case of TMF, this yield is based on interest income from the ETF's holdings of long-term U.S. Treasury securities.

However, in the case of leveraged ETFs, the dividend yield may vary depending on market fluctuations and the ETF's investment strategy, so confirmation is required.

When are TMF distributions (dividends) paid?

TMF pays quarterly distributions (dividends).
It is based on interest income earned from long-term U.S. government bonds held by the TMF, which is distributed periodically to ETF holders.

TMF's current share price and long-term chart

TMF has been in operation since July 2002, making it an ETF with a relatively long operating period.

A look at the long-term price movements of TMF shows the following trends.

Low interest rates and rising prices during the Corona period:. During the coronavirus epidemic period starting in 2020, the price of TMF had risen up to more than $500 due to the low interest rate policy adopted.

When superimposed on the 10-year U.S. government bond yield, the two are, not surprisingly, inversely correlated.
The blue line is the TMF and the orange line is the 10-year U.S. government bond yield.

Rate hikes and price declines:.In March 2023, the Fed begins raising interest rates to combat inflation. As a result, TMF prices drop significantly.

Even with reference to pre-Corona price levels, there is room for price appreciation, but holding for the long term is risky and it may be preferable to hold once the Fed's interest rate cut scenario becomes clearer.

What are the advantages of investing in TMF?

The advantages of investing in TMF include

• TMF to provide 3x leverage,If the performance of the benchmark index is good, there is potential for high returns.
• Because TMF is rebalanced on a daily basis, it is well suited for strategies that take advantage of short-term market movements and can profit from temporary market movements.
• Investing in leveraged bond ETFs such as TMF is an easy way to increase profit opportunities because market volatility due to interest rate effects is more predictable when the outlook for interest rates is clear due to policy.

What are the possible disadvantages of investing in TMF?

The following are possible disadvantages of investing in TMFs

• Because TMF uses three times leverage, it risks incurring significant losses if the market moves against its expectations.
• Leveraged ETFs may experience a discrepancy between expected and actual returns due to the compounding effect when held for long periods of time, and this effect is especially pronounced when the market is volatile.

These disadvantages should be taken into account when considering investment in TMF.

What is TMF's distribution history?

TMF's distributions have fluctuated at times, but most recently have averaged around $0.35 to $0.5.

Why is TMF in the spotlight now?

TMFs are currently attracting attention primarily because of the following factors

• TMF to provide three times leverage over the U.S. long-term bond market,Changes in interest rates and interest rate policy announcements by the Federal Reserve System (Fed) have a significant impact on TMF prices.
  Particularly,When interest rates are expected to fall, prices of long-term bonds rise, and TMFs may also benefit from higher prices.
• In the current economic environment and heightened market uncertainty, investors are focusing on long-term U.S. bonds, which are considered safe assets.
  TMFs may be used as a means of protecting against market volatility by investing in these bonds.
• The leverage effect makes TMF an attractive investment for investors seeking high returns in a short period of time.
  Investments in TMFs are being actively pursued by traders with strong views on the direction of interest rates and by investors who want to take advantage of short-term market movements.

Due to these factors, TMF is currently receiving a high level of attention from investors and traders.

What is the best time to invest in TMF?

The best time to invest in a TMF depends on many factors, but the following points are worth mentioning

When interest rates are expected to fall

TMF is a leveraged ETF that invests in long-term U.S. Treasuries, and lower interest rates typically push up the price of long-term bonds. Therefore,If interest rates are expected to fall, TMF prices could also rise.

When Economic Uncertainty Rises

As uncertainty increases, investors tend to gravitate toward safe assets. Since long-term U.S. Treasuries are traditionally viewed as safe assets, investments in TMFs may attract attention.

When market volatility is high

During times of market volatility, leveraged ETFs like TMF have the potential to provide large returns, but also carry significant risk.
For investors seeking to take advantage of short-term market movements, periods of high volatility can present opportunities.

Watch for changes in monetary policy

Any announcement by the Federal Reserve regarding monetary policy or interest rates could have a significant impact on TMF prices.If interest rates are expected to be lowered or monetary policy to be more accommodative, investing in TMFs may be advantageous.

I see a lot of articles and searches that say "TMF is not recommended." What are the factors behind this?

The main factors found in the articles and opinions that "TMF is not recommended" are as follows

• Because TMF offers three times leverage, investors risk significant losses in a short period of time.
• In an environment of rising interest rates, the performance of leveraged ETFs that invest in long-term bonds, such as TMF, tends to deteriorate. As rising interest rates reduce the price of long-term bonds, the value of TMF also decreases.
• Leveraged ETFs may negatively impact long-term performance due to the compounding effect.
• Because leveraged ETFs, by their very nature, are intended for short-term trading, TMFs are not suitable for long-term investment given the costs and risks associated with holding them for long periods of time.

For these reasons, TMFs are not suitable for beginners or for neglected investments, and are a better option for experienced investors who have a well-developed investment strategy and can actively manage it.

Can TMF be selected as a Nisa target?

• Although it is possible to trade within the general NISA framework, it is not possible to invest in TMF using a TMF through a suspense NISA (savings NISA), and thus cannot enjoy the benefits of a suspense NISA.
• Only domestic investment trusts (and some domestic ETFs) that meet certain requirements can be invested in the TMF, which is an overseas ETF.

What is the difference between TMF and the popular long-term bond ETFs "TLT" and "EDV"?

TMF (Direxion Daily 20+ Year US Treasury Bull 3x ETF),TLT (iShares 20-Year U.S. Government Bond ETF)andEDV (Vanguard Ultra Long-Term U.S. Treasury Bond ETF)are all ETFs that invest in long-term U.S. bonds, but each has its own unique characteristics.

Below is a summary of the differences.

What similar ETFs are often compared to TMF?

Similar ETFs that are often compared to TMFs include the following

TLT (iShares U.S. Government Bonds 20+ Year ETF)

TLTis an ETF that invests in U.S. Treasury securities with maturities of 20 years or longer; it does not use leverage and is less volatile than TMF, but provides exposure to long-term U.S. Treasuries.

What is TLT, a U.S. bond ETF? Why and why it is recommended during a period of falling interest rates?

This section delves into the features of TLT, a long-term U.S. bond ETF, the advantages and disadvantages of investing in TLT, and the relationship between bonds and interest rates. Learn about the relationship between interest rate trends and TLT price movements, the impact of the Fed's interest rate policy, and how to deal with currency risk to help those considering investing in TLTs determine the right time to invest in TLTs.

mifsee.com

EDV (Vanguard Very Long-Term U.S. Treasury Bond ETF)

EDVis an ETF that invests in long-term U.S. Treasuries over 25 years; it is less volatile than TMF because it does not use leverage, but because it invests in longer-term Treasuries than TLT, it has higher interest rate sensitivity and tends to be more volatile.

What is the Best Time to Buy EDV, a U.S. Long-Term Bond ETF? Why and why is it recommended during the interest rate cut phase?

As a portfolio balance, it is important to consider allocations to bonds that are strong during periods of interest rate cuts and in economic downturns. Here, we delve into the popular EDV long-term U.S. bond ETF, EDV, to learn more about the concept of when to buy bond ETFs, key points, and the benefits of investing in them.

mifsee.com

UBT (ProShares Ultra 20+ Year Treasury)

UBT is an ETF that seeks to double the performance of 20+ year U.S. Treasury securities; like TMF, it focuses on long-term U.S. Treasuries, but with twice the leverage.

TTT (ProShares UltraPro Short 20+ Year Treasury)

TTT is an ETF that seeks to triple the inverse of the performance of 20+ year U.S. Treasury securities; it can take an inverse position in TMF and is of interest when the price of long-term U.S. Treasuries is expected to decline.

TMV (Direxion Daily 20+ Year Treasury Bear 3X Shares):.

TMV is an ETF that seeks to triple the inverse performance of 20+ year U.S. Treasury securities; it takes the opposite position from TMF and is used when the price of long-term U.S. Treasuries is expected to decline.

These ETFs may be used in conjunction with TMFs, depending on the investment strategy and market outlook. It is important to understand the characteristics and risks of each ETF before incorporating it into an investment portfolio.

Which brokerage firms can I buy TMF shares?

We have listed the major brokerages that offer TMF shares. At these brokerages, you can choose to invest as a CFD (Contract for Difference) in addition to direct stock trading as a foreign stock.

I myself mainly use SBI Securities, but some stocks they handle may not be available for purchase. In such cases, I sometimes use CFDs at Saxo Bank Securities or IG Securities.

summary

We have looked at TMF, an ETF that offers three times leverage on long-term U.S. bonds, its features, the good and bad points of investing in it, and the relationship between bonds and interest rates.

Bond ETFs like TMF have the characteristic of increasing in value when interest rates fall. Therefore,When interest rate movements are predictable, you may be able to invest with confidence.

However, TMFs are not suitable for long-term investments because they are leveraged three times, making them susceptible to large fluctuations even in small changes in the market.

On the other hand,TLTBond ETFs like the following are more stable to hold because they pay regular dividends (monthly dividends).

As for TMF, it is better to aim for short-term profits when the interest rate policy is clear.

Personally, I am waiting for the Federal Open Market Committee (FOMC) announcement, which will clarify interest rate policy, to determine when to purchase TMF.

This method would make it easier to manage risk while aiming for short-term profits by using leverage.