Here's the backtest above, but with UPRO as a benchmark. This way, one can see the presumed smoothing effect of TMF, and the associated reduction in return for the recent run up of the S&P 500.
I've poked around a bit regarding these NX ETFs (N = 2 or 3). Taking UPRO as an example, the first thing I note is that it is primarily an investment in a derivative called an S&P 500 Index Swap (see http://finance.yahoo.com/q/hl?s=UPRO+Holdings), which, by a miracle of modern finance, returns 3X the S&P 500. So what's the catch? How can the average long-term earnings growth of the S&P 500 constituents be amplified by 3X indefinitely? If we never see a bear market again, would this scheme work?
The other thing I've noticed is that the market cap of leveraged ETFs is quite small compared to direct ETFs. For example, UPRO is $768.22M, whereas SPY is $180.38B. Also, if one compares the expense ratios, they are 0.95% versus 0.09%, respectively. Long-term (e.g. decades), I'm wondering if you just end up with the same average return as a buy and hold balanced ETF/mutual fund, but you get the privilege of paying ~1% more in expenses (not to mention broker commissions).
So rather than buying UPRO, one thought is that there may be useful information in the degree to which UPRO tracks SPY. Basically, use UPRO's algorithm as an indicator.
Grant