Last week, Direxion Shares, the ETF sponsor best known for its leveraged funds, added five leveraged sector funds and one inverse broad market fund to its lineup. The new offerings are:

• Direxion Daily Basic Materials Bull 3X (NYSE: MATL)
• Direxion Daily Basic Materials Bear 3X (NYSE: MATS)
• Direxion Daily Healthcare Bull 3X (NYSE: CURE)
• Direxion Daily Healthcare Bear 3X (NYSE: SICK)
• Direxion Daily Total Market Bear 1X (NYSE: TOTS)

Daily Basic Materials Bull offers 300 percent daily exposure to the Materials Select Sector Index, a benchmark comprised of large-cap companies including chemical outfits, paper and packaging manufacturers, and a long list of other materials firms. Daily Basic Materials Bear is simply the inverse of the bull offering.

Healthcare Bull offers 300 percent daily exposure to the daily change in the Healthcare Select Sector Index, a large-cap index tracking health care-related companies. The Bear fund is simply the inverse of Healthcare Bull.

Direxion Daily Total Market Bear 1X delivers daily inverse returns of the MSCI US Broad Market Index, a broad-based benchmark made up of more than 3,000 US stocks of various market capitalizations.

As the universe of leveraged ETFs continues to expand, investors should note that these funds aren’t designed to be long-term holdings.

After the financial crisis, leveraged and inverse ETFs fell out of favor due to a perceived unpredictability in their performance. As benchmarks declined–an event that should have produced outsized gains for inverse funds–the value of inverse funds also diminished. Many investors believed the funds had failed to live up to their billing. In reality, these funds performed exactly as designed.

Most inverse funds reset daily–their swaps and futures positions open at the beginning of trading and close when the trading day concludes. As a result, gains or losses compound quickly over longer periods of time and don’t correspond exactly with the benchmark’s performance.

If a benchmark gains 10 percent one day and loses 10 percent the next, you would expect a 1 percent loss:

Benchmark: (1 + 10%) x (1 – 10%) = 1.1 x .09 = 0.99 or a 1% loss.

Following this same logic, a 3X long leveraged fund would result in a 3 percent loss over the same two-day trading period. However, the ETF’s daily resets change the math, as you can see in this equation:

3X Fund: (1 + 30%) x (1 – 30%) = 1.3 x 0.7 = 0.91 or a 9% loss.

Many investors didn’t factor daily resets into their expectations and were understandably disappointed by these ETFs’ peformance. What’s more, the simplistic examples I’ve provided don’t account for the effect that expenses have on returns.

If you have a clear DAILY view on the markets, these leveraged funds can be powerful tools. But don’t hold them for more than one trading day and be sure to have realistic expectations for their performance.