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Leveraged ETFs In the Pink After 1 Year of Pandemic
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A year ago, the COVID-19 pandemic brought the economy to a standstill leading to a crash in the stock markets. The crisis has ended the biggest U.S. bull market run in history, sending the three major U.S. indices into a bear market in less than a month, marking the fastest-ever bear market.
However, the stocks staged a solid comeback from its lows on the back of an unprecedented and continued stimulus, a new $1.9 trillion stimulus program, progress on more coronavirus vaccines, and faster vaccine deployment. The combination of all these factors led to pent-up demand, resulting in higher demand for all types of products and services in the economy.
The rounds of solid upbeat economic data indicate a stronger-than-expected recovery. Consumer sentiment as depicted by the University of Michigan jumped to one-year high in early March as more vaccines and fiscal relief boosted the economic outlook. The United States added 379,000 jobs — the highest since October — in February, while unemployment fell to 6.2%. U.S. manufacturing activity increased to a three-year high last month with acceleration in new orders (read: U.S. Manufacturing at 3-Year High: ETFs in Focus).
Consumer spending rose the most in seven months in January while construction spending surged to a record high, boosted by strong private and public outlays. Strong corporate earnings as well as signs of a healing labor market also bode well for economic growth.
Additionally, the Fed has pledged to maintain its accommodative stance and will continue to buy $120 billion in Treasury and mortgage-backed securities per month. A low interest rate bodes well for stocks as it pushes up economic activities and results in higher spending. Further, the Biden administration and its proposals have infused optimism into the economy.
In such a scenario, investors flocked to leveraged ETFs to cash in on the opportunity offered by an improving economy and a rising stock market. Leveraged funds provide multiple exposure (2X or 3X) to the daily performance of the underlying index by employing various investment strategies such as swaps, futures contracts and other derivative instruments. Due to their compounding effect, investors can enjoy higher returns in a very short period of time, provided the trend remains positive (see: all the Leveraged Equity ETFs here).
Below we highlight some best-performing leveraged equity ETFs from different corners of the market that piled up massive gains in the past one-year period. These funds will continue to be investors’ darlings, provided the sentiments remain bullish.
This ETF offers three times leveraged exposure to the S&P Retail Select Industry Index. The product has amassed about $113.9 million in its asset base, while charging 95 bps in fees per year. Its volume is lower as it exchanges around 117,000 shares a day on average.
Daily S&P 500 High Beta Bull 3X Shares (HIBL - Free Report) – Up 711.4%
This ETF offers three times exposure to the performance of the S&P 500 High Beta Index. It has gathered $101.8 million in its asset base and trades in an average daily volume of 214,000 shares. The fund charges 95 bps in fees per year from its investors.
BMO REX MicroSectors FANG+ Index 3X Leveraged ETN (FNGU - Free Report) – Up 672.3%
This note seeks to offer three times leveraged exposure to the NYSE FANG Index, charging 95 bps in annual fees. The ETN has accumulated $1.3 billion in its asset base and trades in an average daily volume of 4.9 million shares.
ProShares UltraPro Russell2000 (URTY - Free Report) – Up 468.3%
This fund also provides three times exposure to the small-cap Russell 2000 Index with an expense ratio of 0.95%. However, it is less popular and less liquid than TNA with AUM of $481.5 million and an average daily volume of 859,000 shares.
TPOR targets the transportation sector and seeks to deliver three times the daily performance of the Dow Jones Transportation Average Index. The product has AUM of $62.8 million and charges 95 bps in fees and expenses. It trades in volumes of about 98,000 shares per day (read: 10 Sector ETFs Flying Higher on a Recovering Economy).
This fund creates a three times leveraged long position on the S&P Biotechnology Select Industry Index. It charges an annual fee of 0.95% and trades in a heavy average daily volume of about 1.2 million shares. The fund has AUM of $571.6 million.
This ETF targets the semiconductor corner of the technology sector with three times leveraged exposure to the PHLX Semiconductor Sector Index. It has amassed about $3.4 billion in its asset base while charging 94 bps in fees per year. Volume is good as it exchanges 23.1 million shares per day, on average (read: 4 ETFs to Invest in Shining Semiconductor Stocks).
Daily Dow Jones Internet Bull 3X Shares (WEBL - Free Report) – Up 389%
This fund provides three times leveraged play on the Internet corner of the broad technology sector by tracking the Dow Jones Internet Composite Index. It has attracted $54 million in its asset base and charges 95 bps in annual fees. The product sees an average daily volume of 70,000 shares.
Daily Robotics, Artificial Intelligence & Automation Index Bull 2X Shares (UBOT - Free Report) – Up 370.3%
This product seeks to deliver two times the daily performance of the Indxx Global Robotics and Artificial Intelligence Thematic Index. It has accumulated $47.8 million in its asset base and trades in an average daily volume of 47,000 shares. The ETF charges 95 bps in annual fees.
Indxx MicroSectors Cannabis 2X Leveraged ETN – Up 323%
This ETN is linked to two times leveraged performance of the Indxx MicroSectors North American Cannabis Index. The index includes North American stocks designed to track the performance of companies that provide products or services related to the medical or industrial use of cannabis or cannabis-related products. The fund has gathered $19.8 million in its asset base and charges 95 bps in annual fees. The note has an average daily volume of 7,000 shares (read: 5 ETF Winners of Coronavirus Pandemic).
Bottom Line
While this strategy is highly beneficial for short-term traders, it could lead to huge losses compared to traditional funds in fluctuating or seesawing markets. Further, the funds’ performance could vary significantly from the actual performance of their underlying index over a longer period when compared to the shorter period (such as weeks or months) due to their compounding effect.
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Leveraged ETFs In the Pink After 1 Year of Pandemic
A year ago, the COVID-19 pandemic brought the economy to a standstill leading to a crash in the stock markets. The crisis has ended the biggest U.S. bull market run in history, sending the three major U.S. indices into a bear market in less than a month, marking the fastest-ever bear market.
However, the stocks staged a solid comeback from its lows on the back of an unprecedented and continued stimulus, a new $1.9 trillion stimulus program, progress on more coronavirus vaccines, and faster vaccine deployment. The combination of all these factors led to pent-up demand, resulting in higher demand for all types of products and services in the economy.
The rounds of solid upbeat economic data indicate a stronger-than-expected recovery. Consumer sentiment as depicted by the University of Michigan jumped to one-year high in early March as more vaccines and fiscal relief boosted the economic outlook. The United States added 379,000 jobs — the highest since October — in February, while unemployment fell to 6.2%. U.S. manufacturing activity increased to a three-year high last month with acceleration in new orders (read: U.S. Manufacturing at 3-Year High: ETFs in Focus).
Consumer spending rose the most in seven months in January while construction spending surged to a record high, boosted by strong private and public outlays. Strong corporate earnings as well as signs of a healing labor market also bode well for economic growth.
Additionally, the Fed has pledged to maintain its accommodative stance and will continue to buy $120 billion in Treasury and mortgage-backed securities per month. A low interest rate bodes well for stocks as it pushes up economic activities and results in higher spending. Further, the Biden administration and its proposals have infused optimism into the economy.
In such a scenario, investors flocked to leveraged ETFs to cash in on the opportunity offered by an improving economy and a rising stock market. Leveraged funds provide multiple exposure (2X or 3X) to the daily performance of the underlying index by employing various investment strategies such as swaps, futures contracts and other derivative instruments. Due to their compounding effect, investors can enjoy higher returns in a very short period of time, provided the trend remains positive (see: all the Leveraged Equity ETFs here).
Below we highlight some best-performing leveraged equity ETFs from different corners of the market that piled up massive gains in the past one-year period. These funds will continue to be investors’ darlings, provided the sentiments remain bullish.
Direxion Daily Retail Bull 3X Shares (RETL - Free Report) – Up 187.3%
This ETF offers three times leveraged exposure to the S&P Retail Select Industry Index. The product has amassed about $113.9 million in its asset base, while charging 95 bps in fees per year. Its volume is lower as it exchanges around 117,000 shares a day on average.
Daily S&P 500 High Beta Bull 3X Shares (HIBL - Free Report) – Up 711.4%
This ETF offers three times exposure to the performance of the S&P 500 High Beta Index. It has gathered $101.8 million in its asset base and trades in an average daily volume of 214,000 shares. The fund charges 95 bps in fees per year from its investors.
BMO REX MicroSectors FANG+ Index 3X Leveraged ETN (FNGU - Free Report) – Up 672.3%
This note seeks to offer three times leveraged exposure to the NYSE FANG Index, charging 95 bps in annual fees. The ETN has accumulated $1.3 billion in its asset base and trades in an average daily volume of 4.9 million shares.
ProShares UltraPro Russell2000 (URTY - Free Report) – Up 468.3%
This fund also provides three times exposure to the small-cap Russell 2000 Index with an expense ratio of 0.95%. However, it is less popular and less liquid than TNA with AUM of $481.5 million and an average daily volume of 859,000 shares.
Direxion Daily Transportation Bull 3X Shares (TPOR - Free Report) – Up 409.8%
TPOR targets the transportation sector and seeks to deliver three times the daily performance of the Dow Jones Transportation Average Index. The product has AUM of $62.8 million and charges 95 bps in fees and expenses. It trades in volumes of about 98,000 shares per day (read: 10 Sector ETFs Flying Higher on a Recovering Economy).
Direxion Daily S&P Biotech Bull 3x Shares (LABU - Free Report) – Up 408.4%
This fund creates a three times leveraged long position on the S&P Biotechnology Select Industry Index. It charges an annual fee of 0.95% and trades in a heavy average daily volume of about 1.2 million shares. The fund has AUM of $571.6 million.
Direxion Daily Semiconductor Bull 3x Shares (SOXL - Free Report) — Up 391.9%
This ETF targets the semiconductor corner of the technology sector with three times leveraged exposure to the PHLX Semiconductor Sector Index. It has amassed about $3.4 billion in its asset base while charging 94 bps in fees per year. Volume is good as it exchanges 23.1 million shares per day, on average (read: 4 ETFs to Invest in Shining Semiconductor Stocks).
Daily Dow Jones Internet Bull 3X Shares (WEBL - Free Report) – Up 389%
This fund provides three times leveraged play on the Internet corner of the broad technology sector by tracking the Dow Jones Internet Composite Index. It has attracted $54 million in its asset base and charges 95 bps in annual fees. The product sees an average daily volume of 70,000 shares.
Daily Robotics, Artificial Intelligence & Automation Index Bull 2X Shares (UBOT - Free Report) – Up 370.3%
This product seeks to deliver two times the daily performance of the Indxx Global Robotics and Artificial Intelligence Thematic Index. It has accumulated $47.8 million in its asset base and trades in an average daily volume of 47,000 shares. The ETF charges 95 bps in annual fees.
Indxx MicroSectors Cannabis 2X Leveraged ETN – Up 323%
This ETN is linked to two times leveraged performance of the Indxx MicroSectors North American Cannabis Index. The index includes North American stocks designed to track the performance of companies that provide products or services related to the medical or industrial use of cannabis or cannabis-related products. The fund has gathered $19.8 million in its asset base and charges 95 bps in annual fees. The note has an average daily volume of 7,000 shares (read: 5 ETF Winners of Coronavirus Pandemic).
Bottom Line
While this strategy is highly beneficial for short-term traders, it could lead to huge losses compared to traditional funds in fluctuating or seesawing markets. Further, the funds’ performance could vary significantly from the actual performance of their underlying index over a longer period when compared to the shorter period (such as weeks or months) due to their compounding effect.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>