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5 Leveraged/Inverse ETFs That Gained Double Digits in August
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The month of August was highly volatile for the U.S. stock market marked by an escalation in U.S.-China trade relations, a slowing global economy and a recession signal being flashed by the inversion of the yield curve. Weak global economic data, low inflation and political unrest in Hong Kong added to the chaos.
However, hopes of monetary easing globally and positive trade developments continued to provide some support in between (read: August ETF Events That Grab Headlines).
Notably, the Dow dropped 1.7%, the S&P 500 shed 1.8% and the Nasdaq lost 2.6% last month. The Russell 2000 Index took the heaviest losses for the month, falling 5.1%. In fact, the S&P 500 posted 11 moves of more than 1% in 22 trading sessions for August. Those moves included three declines of at least 2.6% as well as the index’s worst day of the year on Aug 5, per CNBC.
Against this backdrop, investors are rushing to leveraged or inverse leveraged ETFs to increase 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 of time 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 performances 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).
Still, we have highlighted five leveraged/inverse products that have gained in double digits in August though these involve a great deal of risk when compared to traditional products. This trend might continue at least in the near term provided the sentiments remain the same (see: all Leveraged Equity ETFs here).
NUGT provides three times exposure to the daily performance of the NYSE Arca Gold Miners Index. It charges 91 bps in annual fees and has amassed $1.6 billion in its asset base. Volume is heavy, with around 9.7 million shares exchanged per day on average (read: 5 Gold Mining ETFs & Stocks Shining in August).
Direxion Daily Natural Gas Related Bear 3X Shares – Up 17.3%
This product provides three times inverse exposure to the ISE-Revere Natural Gas Index. It has amassed $9.6 million in its asset base and trades in solid volume of 25,000 shares a day on average. The ETF charges 95 bps in fees per year.
Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 3X Shares (DRIP - Free Report) – Up 15.2%
This fund seeks three times inverse exposure of the performance of the S&P Oil & Gas Exploration & Production Select Industry Index. DRIP has accumulated $41.6 million in its asset base and trades in solid volume of more than 718,000 shares a day on average. The fund charges 95 bps in annual fees.
The fund creates three times leveraged long position in the Dow Jones U.S. Select Aerospace & Defense Index. It charges an annual fee of 95 bps and trades in good average daily volume of about 59,000 shares. The fund has accumulated AUM of $54.8 million.
NAIL provides leveraged exposure to homebuilders and creates a three times long position in the Dow Jones U.S. Select Home Construction Index. It charges an annual fee of 95 bps and trades in average daily volume of about 55,000 shares. The fund has accumulated $43.6 million in its asset base (read: Housing ETFs & Stocks to Buy on Likely September Rate Cut).
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.
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5 Leveraged/Inverse ETFs That Gained Double Digits in August
The month of August was highly volatile for the U.S. stock market marked by an escalation in U.S.-China trade relations, a slowing global economy and a recession signal being flashed by the inversion of the yield curve. Weak global economic data, low inflation and political unrest in Hong Kong added to the chaos.
However, hopes of monetary easing globally and positive trade developments continued to provide some support in between (read: August ETF Events That Grab Headlines).
Notably, the Dow dropped 1.7%, the S&P 500 shed 1.8% and the Nasdaq lost 2.6% last month. The Russell 2000 Index took the heaviest losses for the month, falling 5.1%. In fact, the S&P 500 posted 11 moves of more than 1% in 22 trading sessions for August. Those moves included three declines of at least 2.6% as well as the index’s worst day of the year on Aug 5, per CNBC.
Against this backdrop, investors are rushing to leveraged or inverse leveraged ETFs to increase 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 of time 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 performances 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).
Still, we have highlighted five leveraged/inverse products that have gained in double digits in August though these involve a great deal of risk when compared to traditional products. This trend might continue at least in the near term provided the sentiments remain the same (see: all Leveraged Equity ETFs here).
Direxion Daily Gold Miners Bull 3X Shares (NUGT - Free Report) – Up 21%
NUGT provides three times exposure to the daily performance of the NYSE Arca Gold Miners Index. It charges 91 bps in annual fees and has amassed $1.6 billion in its asset base. Volume is heavy, with around 9.7 million shares exchanged per day on average (read: 5 Gold Mining ETFs & Stocks Shining in August).
Direxion Daily Natural Gas Related Bear 3X Shares – Up 17.3%
This product provides three times inverse exposure to the ISE-Revere Natural Gas Index. It has amassed $9.6 million in its asset base and trades in solid volume of 25,000 shares a day on average. The ETF charges 95 bps in fees per year.
Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 3X Shares (DRIP - Free Report) – Up 15.2%
This fund seeks three times inverse exposure of the performance of the S&P Oil & Gas Exploration & Production Select Industry Index. DRIP has accumulated $41.6 million in its asset base and trades in solid volume of more than 718,000 shares a day on average. The fund charges 95 bps in annual fees.
Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN - Free Report) – Up 14%
The fund creates three times leveraged long position in the Dow Jones U.S. Select Aerospace & Defense Index. It charges an annual fee of 95 bps and trades in good average daily volume of about 59,000 shares. The fund has accumulated AUM of $54.8 million.
Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL - Free Report) - Up 12.9%
NAIL provides leveraged exposure to homebuilders and creates a three times long position in the Dow Jones U.S. Select Home Construction Index. It charges an annual fee of 95 bps and trades in average daily volume of about 55,000 shares. The fund has accumulated $43.6 million in its asset base (read: Housing ETFs & Stocks to Buy on Likely September Rate Cut).
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.
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 >>