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6 Top-Performing Leveraged/Inverse ETFs of September
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September proved the historical trends to be true as Wall Street logged in the worst month of this year. The S&P 500 Index and the Nasdaq Composite Index logged in the worst month since March 2020, falling 4.8% and 5.3%, respectively, while the Dow Jones Industrial Average posted the worst month since October 2020.
Concerns over accelerating coronavirus infections, renewed inflation fears, and signs of a slowdown in China led to risk-off trade. Additionally, worries over the financial contagion of the potential failure of China’s Evergrande property group and the ongoing debates over the debt limit in Washington made investors jittery. Treasury yields spiked lately on the prospect of tightening policies and inflation fears.
U.S. Federal Reserve policymakers last week signaled that they are ready to raise rates in 2022 and that the central bank is likely to begin reducing its monthly bond purchases as soon as November. Meanwhile, Powell warned of higher inflation that will likely persist in the coming months. He said, “As the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly due to supply bottlenecks in some sectors” (read: ETFs to Bet On as Fed Turns Hawkish, Signals Tapering).
Investors should note that the rise in Treasury yields has compelled investors to rotate out of high-growth technology stocks. This is because the rising borrowing costs are weighing on the valuations of growth companies that rely heavily on expectations of strong future earnings.
However, the wider spread of COVID-19 vaccines, a greater vaccination push, improving economic growth, an expanded stimulus, and the resumption of corporate earnings growth are driving the stocks higher.
This has resulted in higher demand for leveraged and inverse-leveraged ETFs as these could fetch outsized returns on quick market turns in a short span.
These products either create a leveraged long/short position, an inverse long/short position or a leveraged inverse long/short position in the underlying index through the use of swaps, options, future contracts, and other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a very short period provided the trend remains a friend. However, these funds run the risk of huge losses compared to traditional funds in fluctuating or seesawing markets. Further, their performance could vary significantly from the actual performance of their underlying index over a longer period when compared to a shorter period (such as weeks or months).
We have highlighted some leveraged/inverse products that gained in double digits last month though these involve a great deal of risk when compared with the traditional products. This trend might continue at least for the near term if the sentiments remain the same.
GDXD seeks to offer three times inverse leveraged exposure to the S-Network MicroSectors Gold Miners Index. The ETN has accumulated $26.7 million in its asset base. It charges 95 basis points (bps) in annual fees.
Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares (GUSH - Free Report) – Up 29%
This fund offers two times exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It has accumulated $911.5 million in its asset base and charges 95 bps in annual fees (read: Play the Rising Energy Sector With These Leveraged ETFs).
This product seeks to deliver three times the inverse daily performance of the S&P Biotechnology Select Industry Index. The fund has amassed $52.4 million in its asset base and charges investors 95 bps in annual fees and expenses.
ETFMG Prime 2x Daily Inverse Junior Silver Miners ETF – Up 22.6%
This ETF creates two times inverse exposure to the Prime Junior Silver Miners and Explorers Index, which offers exposure to the silver mining exploration and production industry. It charges investors an annual fee of 95 bps and has accumulated $0.8 million in its asset base since its debut in June.
ProShares UltraPro Short QQQ (SQQQ - Free Report) – Up 18.1%
This ETF provides three times inverse exposure to the daily performance of the Nasdaq-100 Index, charging 95 bps in annual fees. It has AUM of $1.6 billion (read: Time to Short Nasdaq With These Inverse ETFs?).
This product provides three times inverse exposure to the daily performance of the Technology Select Sector Index. It has amassed about $65.7 million in its asset base while charging 95 bps in fees per year from investors.
Bottom Line
Investors should note that these products are suitable only for short-term traders as these are rebalanced on a daily basis. Further, liquidity can be a big problem as it can make the products more expensive than what they appear (see: all the Inverse Equity ETFs here).
Still, ETF investors seeking to tap abrupt movements can go long or short in the near term.
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6 Top-Performing Leveraged/Inverse ETFs of September
September proved the historical trends to be true as Wall Street logged in the worst month of this year. The S&P 500 Index and the Nasdaq Composite Index logged in the worst month since March 2020, falling 4.8% and 5.3%, respectively, while the Dow Jones Industrial Average posted the worst month since October 2020.
Concerns over accelerating coronavirus infections, renewed inflation fears, and signs of a slowdown in China led to risk-off trade. Additionally, worries over the financial contagion of the potential failure of China’s Evergrande property group and the ongoing debates over the debt limit in Washington made investors jittery. Treasury yields spiked lately on the prospect of tightening policies and inflation fears.
U.S. Federal Reserve policymakers last week signaled that they are ready to raise rates in 2022 and that the central bank is likely to begin reducing its monthly bond purchases as soon as November. Meanwhile, Powell warned of higher inflation that will likely persist in the coming months. He said, “As the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly due to supply bottlenecks in some sectors” (read: ETFs to Bet On as Fed Turns Hawkish, Signals Tapering).
Investors should note that the rise in Treasury yields has compelled investors to rotate out of high-growth technology stocks. This is because the rising borrowing costs are weighing on the valuations of growth companies that rely heavily on expectations of strong future earnings.
However, the wider spread of COVID-19 vaccines, a greater vaccination push, improving economic growth, an expanded stimulus, and the resumption of corporate earnings growth are driving the stocks higher.
This has resulted in higher demand for leveraged and inverse-leveraged ETFs as these could fetch outsized returns on quick market turns in a short span.
These products either create a leveraged long/short position, an inverse long/short position or a leveraged inverse long/short position in the underlying index through the use of swaps, options, future contracts, and other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a very short period provided the trend remains a friend. However, these funds run the risk of huge losses compared to traditional funds in fluctuating or seesawing markets. Further, their performance could vary significantly from the actual performance of their underlying index over a longer period when compared to a shorter period (such as weeks or months).
We have highlighted some leveraged/inverse products that gained in double digits last month though these involve a great deal of risk when compared with the traditional products. This trend might continue at least for the near term if the sentiments remain the same.
MicroSectors Gold Miners -3X Inverse Leveraged ETN (GDXD - Free Report) – Up 30%
GDXD seeks to offer three times inverse leveraged exposure to the S-Network MicroSectors Gold Miners Index. The ETN has accumulated $26.7 million in its asset base. It charges 95 basis points (bps) in annual fees.
Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares (GUSH - Free Report) – Up 29%
This fund offers two times exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It has accumulated $911.5 million in its asset base and charges 95 bps in annual fees (read: Play the Rising Energy Sector With These Leveraged ETFs).
Direxion Daily S&P Biotech Bear 3x Shares (LABD - Free Report) – Up 24%
This product seeks to deliver three times the inverse daily performance of the S&P Biotechnology Select Industry Index. The fund has amassed $52.4 million in its asset base and charges investors 95 bps in annual fees and expenses.
ETFMG Prime 2x Daily Inverse Junior Silver Miners ETF – Up 22.6%
This ETF creates two times inverse exposure to the Prime Junior Silver Miners and Explorers Index, which offers exposure to the silver mining exploration and production industry. It charges investors an annual fee of 95 bps and has accumulated $0.8 million in its asset base since its debut in June.
ProShares UltraPro Short QQQ (SQQQ - Free Report) – Up 18.1%
This ETF provides three times inverse exposure to the daily performance of the Nasdaq-100 Index, charging 95 bps in annual fees. It has AUM of $1.6 billion (read: Time to Short Nasdaq With These Inverse ETFs?).
Direxion Daily Technology Bear 3x Shares (TECS - Free Report) - Up 17.8%
This product provides three times inverse exposure to the daily performance of the Technology Select Sector Index. It has amassed about $65.7 million in its asset base while charging 95 bps in fees per year from investors.
Bottom Line
Investors should note that these products are suitable only for short-term traders as these are rebalanced on a daily basis. Further, liquidity can be a big problem as it can make the products more expensive than what they appear (see: all the Inverse Equity ETFs here).
Still, ETF investors seeking to tap abrupt movements can go long or short in the near term.