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5 Leveraged, Inverse Leveraged ETFs Up in Double Digits in May
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The month of May was marked by huge volatility for Wall Street, with the S&P 500 slipping into the bear-market territory and then showing a nice comeback, wiping out the losses incurred in the month. Meanwhile, Dow Jones' longest weekly losing streak since 1923 ended with last week’s rally. Last week, the Dow Jones and the S&P 500 notched their best weekly gains since November 2020.
Huge volatility and uncertainty have raised the appeal for leveraged and inverse-leveraged ETFs as these fetched outsized returns on quick market turns in a short span. MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report) , Daily Dow Jones Internet Bear 3X Shares (WEBS - Free Report) , ProShares UltraShort Consumer Services (SCC - Free Report) , Direxion Daily US Infrastructure Bull 2X Shares ETF , and MicroSectors Gold Miners -3X Inverse Leveraged ETN (GDXD - Free Report) gained in double digits and might continue their strong performance if sentiments remain the same.
Russia’s invasion of Ukraine, tightening monetary policy and surging commodity prices continued to weigh on investors’ sentiment. Notably, the U.S. economy shrank for the first time since the outbreak of the pandemic. GDP dropped 1.4% annually in the first quarter of 2022, marking a sharp reversal from 6.9% annual growth in the fourth quarter. Additionally, rounds of disappointing earnings from some of the major retailers showed that inflation is hurting corporate profits, leading to a sharp sell-off.
After the stocks briefly dipped into bear market territory (i.e. down 20% from the recent peak) in mid-month, investors jumped into the stocks for bargain hunting. Robust earnings of Ulta Beauty (ULTA - Free Report) and Gap (GPS - Free Report) have lately infused optimism into the retail sector. Meanwhile, an inflation gauge closely tracked by the Federal Reserve rose 6.3% year over year in April, just below a four-decade high set in March and the first slowdown since November 2020 (read: ETFs to Gain As Inflation Remains Second Highest in 4 Decades).
Further, the Fed minutes rekindled some interest in the stock market as there were no surprises. The minutes showed that the central bank would continue raising interest rates by half a percentage point each in June and July to combat surging inflation and avoid an economic downturn. The initial phase of the rate increase will be good for stocks as it will reflect an improving economy.
Leveraged and Inverse-Leveraged ETFs
Leveraged and inverse-leveraged ETFs 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 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).
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 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.
MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report) – Up 79.4%
MicroSectors U.S. Big Oil Index 3X Leveraged ETN provides three times (3X or 300%) leveraged exposure to the Solactive MicroSectors U.S. Big Oil Index, which is equal-dollar weighted and provides exposure to the 10 largest U.S. energy and oil companies (read: A Guide to the 10 Most-Popular Leveraged ETFs).
MicroSectors U.S. Big Oil Index 3X Leveraged ETN has been able to manage $2.3 billion in its asset base, while trading in an average daily volume of 141,000 shares. The expense ratio comes in at 0.95%.
Daily Dow Jones Internet Bear 3X Shares (WEBS - Free Report) – Up 20.5%
Daily Dow Jones Internet Bear 3X Shares provides three times inverse play on the Internet corner of the broad technology sector by tracking the Dow Jones Internet Composite Index.
Daily Dow Jones Internet Bear 3X Shares has attracted $36.5 million in its asset base and charges 95 bps in annual fees. The ETF sees an average daily volume of about 319,000 shares (read: Inverse ETFs Take Flight as Market Turns Sour).
ProShares UltraShort Consumer Services seeks two times the inverse daily performance of the Dow Jones U.S. Consumer Services Index, which measures the stock performance of U.S. companies in the consumer services sector of the U.S. equity market.
ProShares UltraShort Consumer Services has amassed $3.4 million in its asset base and has an average daily volume of around 22,000 shares. SCC charges investors 95 bps in annual fees.
Direxion Daily US Infrastructure Bull 2X Shares ETF – Up 13%
Direxion Daily US Infrastructure Bull 2X Shares ETF targets the companies involved in infrastructure through engineering, design, maintenance, and construction of infrastructure projects. It seeks to deliver two times the performance of the Indxx US Infrastructure Index.
With AUM of $6.9 million, Direxion Daily US Infrastructure Bull 2X Shares ETF has an expense ratio of 0.95% and trades in an average daily volume of 1000 shares.
MicroSectors Gold Miners -3X Inverse Leveraged ETN seeks to offer three times inverse leveraged exposure to the S-Network MicroSectors Gold Miners Index.
MicroSectors Gold Miners -3X Inverse Leveraged ETN has accumulated $12.5 million in its asset base and trades in an average daily volume of 116,000 shares. It charges 95 bps in annual fees.
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5 Leveraged, Inverse Leveraged ETFs Up in Double Digits in May
The month of May was marked by huge volatility for Wall Street, with the S&P 500 slipping into the bear-market territory and then showing a nice comeback, wiping out the losses incurred in the month. Meanwhile, Dow Jones' longest weekly losing streak since 1923 ended with last week’s rally. Last week, the Dow Jones and the S&P 500 notched their best weekly gains since November 2020.
Huge volatility and uncertainty have raised the appeal for leveraged and inverse-leveraged ETFs as these fetched outsized returns on quick market turns in a short span. MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report) , Daily Dow Jones Internet Bear 3X Shares (WEBS - Free Report) , ProShares UltraShort Consumer Services (SCC - Free Report) , Direxion Daily US Infrastructure Bull 2X Shares ETF , and MicroSectors Gold Miners -3X Inverse Leveraged ETN (GDXD - Free Report) gained in double digits and might continue their strong performance if sentiments remain the same.
Russia’s invasion of Ukraine, tightening monetary policy and surging commodity prices continued to weigh on investors’ sentiment. Notably, the U.S. economy shrank for the first time since the outbreak of the pandemic. GDP dropped 1.4% annually in the first quarter of 2022, marking a sharp reversal from 6.9% annual growth in the fourth quarter. Additionally, rounds of disappointing earnings from some of the major retailers showed that inflation is hurting corporate profits, leading to a sharp sell-off.
After the stocks briefly dipped into bear market territory (i.e. down 20% from the recent peak) in mid-month, investors jumped into the stocks for bargain hunting. Robust earnings of Ulta Beauty (ULTA - Free Report) and Gap (GPS - Free Report) have lately infused optimism into the retail sector. Meanwhile, an inflation gauge closely tracked by the Federal Reserve rose 6.3% year over year in April, just below a four-decade high set in March and the first slowdown since November 2020 (read: ETFs to Gain As Inflation Remains Second Highest in 4 Decades).
Further, the Fed minutes rekindled some interest in the stock market as there were no surprises. The minutes showed that the central bank would continue raising interest rates by half a percentage point each in June and July to combat surging inflation and avoid an economic downturn. The initial phase of the rate increase will be good for stocks as it will reflect an improving economy.
Leveraged and Inverse-Leveraged ETFs
Leveraged and inverse-leveraged ETFs 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 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).
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 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.
MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report) – Up 79.4%
MicroSectors U.S. Big Oil Index 3X Leveraged ETN provides three times (3X or 300%) leveraged exposure to the Solactive MicroSectors U.S. Big Oil Index, which is equal-dollar weighted and provides exposure to the 10 largest U.S. energy and oil companies (read: A Guide to the 10 Most-Popular Leveraged ETFs).
MicroSectors U.S. Big Oil Index 3X Leveraged ETN has been able to manage $2.3 billion in its asset base, while trading in an average daily volume of 141,000 shares. The expense ratio comes in at 0.95%.
Daily Dow Jones Internet Bear 3X Shares (WEBS - Free Report) – Up 20.5%
Daily Dow Jones Internet Bear 3X Shares provides three times inverse play on the Internet corner of the broad technology sector by tracking the Dow Jones Internet Composite Index.
Daily Dow Jones Internet Bear 3X Shares has attracted $36.5 million in its asset base and charges 95 bps in annual fees. The ETF sees an average daily volume of about 319,000 shares (read: Inverse ETFs Take Flight as Market Turns Sour).
ProShares UltraShort Consumer Services (SCC - Free Report) – Up 14.9%
ProShares UltraShort Consumer Services seeks two times the inverse daily performance of the Dow Jones U.S. Consumer Services Index, which measures the stock performance of U.S. companies in the consumer services sector of the U.S. equity market.
ProShares UltraShort Consumer Services has amassed $3.4 million in its asset base and has an average daily volume of around 22,000 shares. SCC charges investors 95 bps in annual fees.
Direxion Daily US Infrastructure Bull 2X Shares ETF – Up 13%
Direxion Daily US Infrastructure Bull 2X Shares ETF targets the companies involved in infrastructure through engineering, design, maintenance, and construction of infrastructure projects. It seeks to deliver two times the performance of the Indxx US Infrastructure Index.
With AUM of $6.9 million, Direxion Daily US Infrastructure Bull 2X Shares ETF has an expense ratio of 0.95% and trades in an average daily volume of 1000 shares.
MicroSectors Gold Miners -3X Inverse Leveraged ETN (GDXD - Free Report) – Up 12.7%
MicroSectors Gold Miners -3X Inverse Leveraged ETN seeks to offer three times inverse leveraged exposure to the S-Network MicroSectors Gold Miners Index.
MicroSectors Gold Miners -3X Inverse Leveraged ETN has accumulated $12.5 million in its asset base and trades in an average daily volume of 116,000 shares. It charges 95 bps in annual fees.