It’s simply absurd to ignore that removing (adding) money to a 3X ETF when the fund does well (poorly) can counteract the effect that the daily reset of leverage has.
I can’t understand why you insist on looking at one component of a portfolio in isolation and concluding it shouldn’t be used.
If all you are going to talk about is TMF standalone, why are you even posting here In the thread at all? That's what I don't understand.
Here let's look at a period that isn't favorable to TMF where 30 year rates only dropped 0.04% (basically flat) I chose the 30 year since TMF has an average maturity of 25 years. The 20 year rose 0.18% in that time.
[July 2016 to Oct 2019]
30 yr Treasuries 2.23% -> 2.19%
20 yr Treasuries 1.82% -> 2.00%
TLT (iShares 20+ Year Treasury) 3.06% <--no leverage drag
TMF ( 20+ Yr Trsy 3X ETF) 1.82% <-- terrible leverage sucks
TMF/UPRO 20.92% <-- Oh, my leverage wins.
So, we do see volatility drag in TMF over a basically flat period. And obviously TLT would make a better pairing with UPRO if we judge by the returns of a single fund as you like to do! Right! Wrong.
And TMF isn't that far away from rolling TLT with futures
TLT X3 - CASHX /UPRO 21.63%
Be honest. What does your method guesstimate for TMF in July 2016 when it was priced to return 2.23%? You estimate it would lose what - four of five percent?
Here's another basically flat period
Jul 2014 - Nov 2018
30 yr 3.33% -> 3.36%
20 yr 3.27% -> 3.27%
TLT (iShares 20+ Year Treasury) 2.96% <--- again isn't this best? Hint: again no.
TMF ( 20+ Yr Trsy 3X ETF) 1.97%
TLT X3 - CASHX /UPRO 15.61%
I simply don't see TMF losing 7% from volatility which you have repeatedly and emphatically stated is sure to be the case, and not only that but any protest to the contrary means one is claiming to know more than other market participants which obviously can't be the case.
Talking about TMF standalone, which you point out is all you do, is both misleading and uninformative I think. I'm going to keep talking about how TMF behaves in the way that it is typically used. You can keep talking about a way that no-one uses it, but to what point?
Anyway, sure futures is likely to do better than TMF. I don't doubt that. I still see TMF as viable though despite your doomed to failure predictions. Leveraged treasuries is better to offset leveraged equity I think. A look at any equity crash will show you that.
Stagflation will kill this strategy. I am not saying it is without real and scary risk.