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5 Leveraged ETFs That Soared More Than 20% in April
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Amid all the woes ranging from higher yields to the tech turmoil, the major stock indexes posted their first positive month in three. The 10-year yields jumped to above 3% for the first time since 2014, and stole money from riskier assets (read: ETFs to Benefit or Lose from Rising Yields).
The stock gains came on the heels of solid corporate earnings and higher oil prices. At the halfway mark, earnings for the 267 S&P 500 members that have reported results are up 25.1% from the same period last year on 10% higher revenues, with 76.8% beating EPS estimates and 73.8% beating revenue estimates. With this, Q1 earnings and revenue growth is on track to reach the highest level in seven years. Meanwhile, oil price has shown immense upside, gaining about 6% in April.
These have resulted in huge demand for leveraged ETFs as investors seek to register big gains in a short span. Leveraged funds provide multiple exposure (i.e. 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 a friend.
In fact, many products provided outsized gains (over 20%) last month, though these involve a great deal of risk when compared to traditional products. Below we have highlighted five such ETFs that generated more than 20% returns last month and should continue to do so at least for the near term if the sentiments remain intact (see: all Leveraged Equity ETFs here).
Direxion Daily S&P Oil & Gas Exploration & Production Bull 3x Shares (GUSH - Free Report) – Up 51.3%
This fund is powered by higher oil prices and offers triple exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It has accumulated $125.1 million in its asset base and the average daily volume is solid at around 1.2 million shares. Expense ratio comes in at 0.95%.
Direxion Daily Natural Gas Related Bull 3x Shares – Up 37.8%
This product seeks to deliver thrice the daily performance of the ISE Revere Natural Gas Index, which derives a substantial portion of its revenues from the exploration and production of natural gas. The fund has amassed $35.5 million in AUM and trades in a good average daily volume of 204,000 shares. Expense ratio comes in at 0.95%.
Direxion Daily Energy Bull & 3x Shares (ERX - Free Report) – Up 37.5%
The fund creates a triple leveraged long position in the Energy Select Sector Index while charging 95 bps in fees a year. It is a popular and liquid option in the energy leveraged space, with AUM of $454.1 million and average trading volume of around 2.2 million shares (read: Oil Price Jumps on Syria Turmoil: ETFs & Stocks to Trade).
ProShares Ultra Oil & Gas ETF (DIG - Free Report) – Up 24.4%
This ETF seeks to deliver twice the daily performance of the Dow Jones U.S. Oil & Gas Index. It has been able to manage $123.2 million in its asset base and trades in a good volume of about 105,000 shares per day on average. DIG charges 95 bps in fees per year.
BMO REX MicroSectors FANG+ Index 3X Leveraged ETN (FNGU - Free Report) – Up 21.1%
This note seeks to offer three times leveraged exposure to the NYSE FANG Index, which is an equal-dollar weighted index targeting the highly-traded growth stocks of next generation technology and tech-enabled companies in the technology and consumer discretionary sectors. The ETN debuted in late January and has accumulated $59.4 million since then. It charges 95 bps in annual fees and trades in average daily volume of 117,000 shares (read: New Triple Leveraged FANG ETFs: Should You Buy?).
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, their 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.
Still, for ETF investors who are bullish on equities for the near term, any of the above products could make an interesting choice. Clearly, a near-term long could be intriguing for those with high-risk tolerance, and a belief that the “trend is the friend” in this corner of the investing world.
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5 Leveraged ETFs That Soared More Than 20% in April
Amid all the woes ranging from higher yields to the tech turmoil, the major stock indexes posted their first positive month in three. The 10-year yields jumped to above 3% for the first time since 2014, and stole money from riskier assets (read: ETFs to Benefit or Lose from Rising Yields).
The stock gains came on the heels of solid corporate earnings and higher oil prices. At the halfway mark, earnings for the 267 S&P 500 members that have reported results are up 25.1% from the same period last year on 10% higher revenues, with 76.8% beating EPS estimates and 73.8% beating revenue estimates. With this, Q1 earnings and revenue growth is on track to reach the highest level in seven years. Meanwhile, oil price has shown immense upside, gaining about 6% in April.
These have resulted in huge demand for leveraged ETFs as investors seek to register big gains in a short span. Leveraged funds provide multiple exposure (i.e. 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 a friend.
In fact, many products provided outsized gains (over 20%) last month, though these involve a great deal of risk when compared to traditional products. Below we have highlighted five such ETFs that generated more than 20% returns last month and should continue to do so at least for the near term if the sentiments remain intact (see: all Leveraged Equity ETFs here).
Direxion Daily S&P Oil & Gas Exploration & Production Bull 3x Shares (GUSH - Free Report) – Up 51.3%
This fund is powered by higher oil prices and offers triple exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It has accumulated $125.1 million in its asset base and the average daily volume is solid at around 1.2 million shares. Expense ratio comes in at 0.95%.
Direxion Daily Natural Gas Related Bull 3x Shares – Up 37.8%
This product seeks to deliver thrice the daily performance of the ISE Revere Natural Gas Index, which derives a substantial portion of its revenues from the exploration and production of natural gas. The fund has amassed $35.5 million in AUM and trades in a good average daily volume of 204,000 shares. Expense ratio comes in at 0.95%.
Direxion Daily Energy Bull & 3x Shares (ERX - Free Report) – Up 37.5%
The fund creates a triple leveraged long position in the Energy Select Sector Index while charging 95 bps in fees a year. It is a popular and liquid option in the energy leveraged space, with AUM of $454.1 million and average trading volume of around 2.2 million shares (read: Oil Price Jumps on Syria Turmoil: ETFs & Stocks to Trade).
ProShares Ultra Oil & Gas ETF (DIG - Free Report) – Up 24.4%
This ETF seeks to deliver twice the daily performance of the Dow Jones U.S. Oil & Gas Index. It has been able to manage $123.2 million in its asset base and trades in a good volume of about 105,000 shares per day on average. DIG charges 95 bps in fees per year.
BMO REX MicroSectors FANG+ Index 3X Leveraged ETN (FNGU - Free Report) – Up 21.1%
This note seeks to offer three times leveraged exposure to the NYSE FANG Index, which is an equal-dollar weighted index targeting the highly-traded growth stocks of next generation technology and tech-enabled companies in the technology and consumer discretionary sectors. The ETN debuted in late January and has accumulated $59.4 million since then. It charges 95 bps in annual fees and trades in average daily volume of 117,000 shares (read: New Triple Leveraged FANG ETFs: Should You Buy?).
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, their 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.
Still, for ETF investors who are bullish on equities for the near term, any of the above products could make an interesting choice. Clearly, a near-term long could be intriguing for those with high-risk tolerance, and a belief that the “trend is the friend” in this corner of the investing world.
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 >>