The fund shot up 32.2 percent on Wednesday, January 29, then fell back down 27.9 percent the next day. The next week, the fund rose 21.7 percent on Tuesday, February 4, and then fell back 11 percent the next day.
But the peculiarities of compounding meant the tracking did not hold over the long term. Between January 27 and February 7, the fund lost 7.7 percent while the underlying index showed a gain of 2.1 percent.
To be sure, holding on to the wrong ETF for the long term could really hurt. In 2013, the Credit Suisse VelocityShares Daily 2x VIX Short-Term ETN dropped roughly 92 percent in what was a low-volatility year. The fund seeks to deliver twice the daily return of the S&P 500 VIX Short-Term Futures Index, a measure of volatility.
HOLDING FOR LONGER
As far back as 2009, regulators were warning individual investors about holding leveraged ETFs. Wall Street's self-regulator, the Financial Industry Regulatory Authority, put out an investor alert about use of leveraged ETFs by buy-and-hold investors.
But in less-volatile periods like 2013, the funds can turn in outsized returns and that has attracted more RIAs, Eschmann said.
"Much more frequently people are calling up and saying, 'hey, I thought I couldn't hold these things, but now it's up 50, 60 percent year-to-date,'" he said.
Bethesda, Md.-based ProShares, which has roughly $27 billion in assets of the $33 billion leveraged and inverse ETF market, said more than 70 percent of its ETFs outperformed their stated daily objective over the entire 2013 calendar year.
"If you filter out the noise day to day ... and catch it right, it's very easy to sit through a day or two when the market moves against you," Blank said.
He said he sees his fellow advisers approaching these ETFs more strategically than in the past. "There has to be some sort of methodology, otherwise they really can be very hazardous to portfolios."