The Nasdaq-100's latest market swings are exposing an uncomfortable reality for investors betting on leveraged ETFs. ProShares UltraPro QQQ (TQQQ), which targets three times the index's daily returns, is struggling to keep pace with its unleveraged counterpart, Invesco QQQ Trust (QQQ).

The difference has become particularly striking in 2026. As of Thursday, TQQQ was down approximately 3.71% year to date, while QQQ had gained 5.69%. Meanwhile, the Nasdaq-100 index also grew.

That means a hypothetical $10,000 investment in TQQQ at the beginning of the year would have fallen to approximately $9,629. The same investment in QQQ would have grown to around $10,569, assuming reinvested distributions.

Why Isn't TQQQ Delivering Three Times the Returns?

The answer lies in how leveraged ETFs work.

TQQQ does not promise three times the Nasdaq-100's return over weeks, months or years. Instead, it targets three times the index's performance on a daily basis, resetting its exposure every trading session.

That daily reset creates a compounding effect that can work against investors when markets experience repeated swings.

Consider a simplified example. If the Nasdaq-100 gains 10% one day and loses 10% the next, an investment of $10,000 would first rise to $11,000 before falling to $9,900, resulting in a 1% loss.

A hypothetical 3X fund would gain 30% on the first day, taking the investment to $13,000, but lose 30% the next day, leaving just $9,100. That's a 9% loss.

The underlying index would have lost only 1%.

The Longer-Term Performance Gap

TQQQ's long-term performance shows both the potential and limitations of leveraged ETFs. According to fund performance data as of Oct. 31, Invesco QQQ delivered an annualised 10-year return of 20.26%, while ProShares UltraPro QQQ generated 38.29%.

Over the decade through Oct. 31, a hypothetical $10,000 investment in QQQ would have grown to approximately $63,500, while the same investment in TQQQ would have ballooned to nearly $239,800, assuming distributions were reinvested. However, TQQQ's 38.29% annualised return was still well below the 60.78% implied by simply tripling QQQ's CAGR, underscoring why daily leverage does not translate into three times the long-term returns.

The difference reflects TQQQ's daily reset mechanism.

The fund targets three times the Nasdaq-100's daily performance, not three times its cumulative or annualised returns. Market volatility, the sequence of daily gains and losses, and compounding can significantly influence its longer-term performance.