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August has been an extremely volatile month for the global stock market. This is because heightened North Korea tensions and doubts over Trump administration triggered risk-off trade several times in the month. An uncertain Fed policy, threat of government shutdown and Hurricane Harvey also took a toll on stocks (read: Hedge Against Volatility With These ETFs).
On the other hand, strong corporate earnings, new hopes for tax reform, and upbeat economic data provided strength to the market. In particular, the second estimate for Q2 GDP showed that U.S. economy growth was the fastest in two years on robust consumer spending and strong business investment. Additionally, consumer confidence reached the second highest level since late 2000. All these data bolstered optimism and reflected that the American economy is on firm footing. This propelled stocks higher.
Given heightened volatility, leveraged or inverse ETFs were in the limelight this month as investors embraced these products for bigger gains in a short span. This was in spite of the fact that these involve a great deal of risk when compared to traditional products. These products create either leveraged (2x or 3x) long/short position, an inverse long/short position or a leveraged inverse long/short position in the underlying index by employing various investment strategies such as swaps, options, future contracts and other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a very short period of time provided the trend remains a friend.
Below, we have highlighted five such ETFs that crushed the market in August and should continue to do so at least in the near term if sentiments remain volatile (see: all Leveraged Equity ETFs here).
Direxion Daily Natural Gas Related Bear 3X Shares
This product provides three times (3x) leveraged inverse exposure to the ISE-Revere Natural Gas Index. It has amassed $3.4 million in its asset base and trades in light volume of 14.9 million shares a day on average. The ETF charges 95 bps in fees per year and has gained 37.3% this month.
This fund seeks 3x inverse exposure of the performance of the S&P Oil & Gas Exploration & Production Select Industry Index. DRIP has accumulated $18.4 million in its asset base and trades in a solid volume of around 647,000 shares a day on average. The fund was up 33.2% this month.
This product provides 3x inverse exposure to the Energy Select Sector Index. It is extremely popular and trades in heavy volume nearly 1.2 million shares. The ETF charges annual fee of 95 bps and has AUM of $43 million. It has gained 19.3% this month (read: Capex Cuts Are Back: What's in Store for Energy ETFs?).
This product provides 3x exposure to the daily performance of the NYSE Arca Gold Miners Index. It charges 90 bps in annual fees and has accumulated nearly $1.5 billion in its asset base. Volume is heavy, with more than 10 million shares exchanged per day on an average. NUGT gained 13.3% this month.
This product provides 3x exposure to the daily performance of the MVIS Global Junior Gold Miners Index. It charges 95 bps in annual fees and has accumulated nearly $791 million in its asset base. Volume is heavy, exchanging about 15.8 million in shares per day on average. JNUG gained 10.1% this month (read: Will Gold ETFs Shine in August?).
Bottom Line
While the strategy is highly beneficial for short-term traders, it could lead to huge losses compared with traditional funds in fluctuating or seesaw markets. Further, their performances could vary significantly from the actual performance of their underlying index over a longer term when compared to a shorter period (such as, weeks or months) due to their compounding effect.
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Best Performing Leveraged/Inverse ETFs of August
August has been an extremely volatile month for the global stock market. This is because heightened North Korea tensions and doubts over Trump administration triggered risk-off trade several times in the month. An uncertain Fed policy, threat of government shutdown and Hurricane Harvey also took a toll on stocks (read: Hedge Against Volatility With These ETFs).
On the other hand, strong corporate earnings, new hopes for tax reform, and upbeat economic data provided strength to the market. In particular, the second estimate for Q2 GDP showed that U.S. economy growth was the fastest in two years on robust consumer spending and strong business investment. Additionally, consumer confidence reached the second highest level since late 2000. All these data bolstered optimism and reflected that the American economy is on firm footing. This propelled stocks higher.
Given heightened volatility, leveraged or inverse ETFs were in the limelight this month as investors embraced these products for bigger gains in a short span. This was in spite of the fact that these involve a great deal of risk when compared to traditional products. These products create either leveraged (2x or 3x) long/short position, an inverse long/short position or a leveraged inverse long/short position in the underlying index by employing various investment strategies such as swaps, options, future contracts and other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a very short period of time provided the trend remains a friend.
Below, we have highlighted five such ETFs that crushed the market in August and should continue to do so at least in the near term if sentiments remain volatile (see: all Leveraged Equity ETFs here).
Direxion Daily Natural Gas Related Bear 3X Shares
This product provides three times (3x) leveraged inverse exposure to the ISE-Revere Natural Gas Index. It has amassed $3.4 million in its asset base and trades in light volume of 14.9 million shares a day on average. The ETF charges 95 bps in fees per year and has gained 37.3% this month.
Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 3X Shares (DRIP - Free Report)
This fund seeks 3x inverse exposure of the performance of the S&P Oil & Gas Exploration & Production Select Industry Index. DRIP has accumulated $18.4 million in its asset base and trades in a solid volume of around 647,000 shares a day on average. The fund was up 33.2% this month.
Direxion Daily Energy Bear 3x Shares ETF (ERY - Free Report)
This product provides 3x inverse exposure to the Energy Select Sector Index. It is extremely popular and trades in heavy volume nearly 1.2 million shares. The ETF charges annual fee of 95 bps and has AUM of $43 million. It has gained 19.3% this month (read: Capex Cuts Are Back: What's in Store for Energy ETFs?).
Direxion Daily Gold Miners Bull 3X Shares (NUGT - Free Report)
This product provides 3x exposure to the daily performance of the NYSE Arca Gold Miners Index. It charges 90 bps in annual fees and has accumulated nearly $1.5 billion in its asset base. Volume is heavy, with more than 10 million shares exchanged per day on an average. NUGT gained 13.3% this month.
Direxion Daily Junior Gold Miners Index Bull 3x Shares (JNUG - Free Report)
This product provides 3x exposure to the daily performance of the MVIS Global Junior Gold Miners Index. It charges 95 bps in annual fees and has accumulated nearly $791 million in its asset base. Volume is heavy, exchanging about 15.8 million in shares per day on average. JNUG gained 10.1% this month (read: Will Gold ETFs Shine in August?).
Bottom Line
While the strategy is highly beneficial for short-term traders, it could lead to huge losses compared with traditional funds in fluctuating or seesaw markets. Further, their performances could vary significantly from the actual performance of their underlying index over a longer term when compared to a 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 >>