ZSL discussion forums were full of angry investors, who were seeing their positions in the red on the day when silver was also down. Many of them were even calling for SEC investigation of the fund.
In order to make sense of what happened, one has to take into account that ZSL is rebalanced at 7am (ET) when its NAV is calculated based on the London Silver Fix. When it begins trading at 9:30 am on the NYSE, the proper baseline is not the previous day’s closing price, but the 7 am NAV. This means that the fund has taken short positions on silver (forward and futures contracts) based on the London Silver Fix price, and it will be losing if the silver price goes above the London Fix after 9:30 and gaining if it is below.
Their explicit goal of targeting a daily benchmark return correlation leaves the secondary consideration less important: Maximizing long term returns. Thus, the ETFs tend to underperform their benchmark over longer durations, and this adds up.
via A Strategy For Shorting Leveraged ETF Pairs – Seeking Alpha