The Hidden Costs of Leveraged Exposure: Why TSLL Fails Long-Term Tesla Investors

Leveraged exchange-traded funds (ETF) are often marketed as tools for amplifying returns in volatile markets. Yet for long-term investors, these products can become financial traps, eroding capital through structural mechanisms that defy intuition. The case of TSLL, a 1.5x leveraged ETF tracking Tesla Inc. (TSLA), exemplifies this risk. While TSLL aims to deliver amplified daily returns, its performance over extended periods diverges sharply from its target, undermining its utility for investors seeking sustained exposure to Tesla's growth.

The Allure and Pitfalls of Leveraged ETFs

TSLL's design appears straightforward: it seeks to deliver 1.5 times the daily return of Tesla's stock. However, this leverage comes at a cost. Data from PortfoliosLab reveals that TSLL's year-to-date return as of November 2025 is -30.20%, far below TSLA's 6.36% gain over the same period. This discrepancy is not an anomaly but a predictable outcome of the fund's structure. Leveraged ETFs rely on daily rebalancing to maintain their leverage ratio, a process that amplifies losses during drawdowns and volatility. For instance, in late 2022, when Tesla fell 63%, TSLL plummeted nearly 80%. Such outcomes highlight the inherent fragility of leveraged products in prolonged or volatile markets.

Structural Decay: The Invisible Erosion

The most insidious risk of leveraged ETFs is their susceptibility to compounding and volatility drag. Even if Tesla's stock remains flat, TSLL's value can decline over time. Between August 2022 and mid-2025, Tesla's stock price showed little movement, yet TSLL lost over 56% of its value. This decay arises because leveraged ETFs reset their exposure daily, compounding gains and losses in a nonlinear fashion. Academic research underscores that this dynamic is exacerbated in mean-reverting or highly volatile markets, where the fund's derivatives-based structure incurs drag. For long-term investors, this means that holding TSLL-even during periods of stability in Tesla's stock-can lead to unforced losses.

Performance Divergence Over Time

The gap between TSLL and Tesla's performance widens with time. Over three years, Tesla has delivered annualized returns of 30.95%, while TSLL has returned 18.15% according to data. In 2023, Tesla surged 102%, and TSLL gained 140%, aligning with its 1.5x target. But by 2024, Tesla's 62.5% gain was matched by TSLL's 99.6% rise, revealing a growing misalignment as research shows. This divergence is not due to poor management but to the mathematical impossibility of maintaining a fixed leverage ratio over extended periods. As one LinkedIn analysis notes, leveraged ETFs are "bad for your wealth" in long-term horizons.

Alternatives for Long-Term Investors

For investors seeking amplified exposure to Tesla, alternatives exist. Direct ownership of Tesla stock or long-dated options (LEAPS) offers more predictable outcomes. As Rebellionaire argues, these strategies avoid the structural decay inherent in leveraged ETFs. Additionally, investors can use sector ETFs or index funds to gain diversified exposure without the risks of daily rebalancing.

Conclusion

TSLL's underperformance underscores a broader lesson: leveraged ETFs are tools for active traders, not long-term investors. Their structural risks-volatility drag, compounding decay, and performance divergence-make them ill-suited for holding periods exceeding a few weeks. For those bullish on Tesla's future, patience and simplicity remain superior to the allure of amplified returns.