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After a brutal March, U.S. stocks came back roaring in April buoyed by unprecedented fiscal and monetary stimulus, progress in the development of a coronavirus vaccine or treatment as well as optimism over the reopening of the economy. The market is expected to reopen mostly by May 15 through Jun 1 that will revive growth and propel demand.
Additionally, the Fed in its latest Federal Open Market Committee meeting pledged to continue its historically aggressive policy stance until the economy again reaches full employment and 2% inflation. Notably, the S&P 500 is up more than 13% for the month, marking the biggest one-month gain since 1974 while the Dow Jones is up 12.4%, representing the biggest monthly gain since 1987 (read: 6 Top-Ranked ETFs Beating the Market).
The bullishness has led to 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 positive.
Below we highlighted seven leveraged equity ETFs that more than doubled over the past month (as of Apr 29). These funds will continue to be investors’ darlings provided the sentiments remain bullish.
Direxion Daily S&P Oil & Gas Exploration & Production Bull 2x Shares (GUSH - Free Report) – Up 187.9%
This fund offers a two times exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It has accumulated $305.3 million in its asset base and has a solid average daily volume of around 1.1 million shares. The expense ratio comes in at 0.95%.
NAIL provides leveraged exposure to homebuilders and creates three times long position on the Dow Jones U.S. Select Home Construction Index. It charges an annual fee of 95 bps and trades in a good average daily volume of about 491,000 shares. The fund has accumulated $154.6 million in its asset base.
MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report) – Up 148.4%
This ETN provides levered 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. It has been able to manage $4.6 million in its asset base while trades in average daily volume of 368,000 shares. Expense ratio comes in at 0.95% (read: Oil in Great Contango: Here's How to Play With Crude ETFs).
This ETF offers three times leveraged exposure to the S&P Retail Select Industry Index. The product has amassed about $11.3 million in its asset base, while charging 95 bps in fees per year. Its volume is lower as it exchanges around 7,000 shares a day on average.
This fund creates a 3x leveraged long position on the S&P Biotechnology Select Industry Index. It charges an annual fee of 95 bps and trades in a heavy average daily volume of about 2.3 million shares. The fund has AUM of $416.6 million (read: Biotech ETFs Gaining on Progress in Coronavirus Treatment).
Daily S&P 500 High Beta Bull 3X Shares (HIBL - Free Report) – Up 107.8%
This ETF offers three times exposure to the performance of the S&P 500 High Beta Index. It has gathered $11.9 million in AUM and trades in average daily volume of 9,000 shares. The fund charges 95 bps in fees per year from investors.
Direxion Daily Junior Gold Miners Index Bull 2x Shares (JNUG - Free Report) – Up 106.5%
This product provides 2x exposure to the daily performance of the MVIS Global Junior Gold Miners Index. It charges 89 bps in annual fees and has accumulated $672.9 million in its asset base. Volume is heavy, exchanging about 2.9 million in shares per day on average.
Bottom Line
While this strategy is highly beneficial for short-term traders, it could lead to huge losses compared to traditional funds in the fluctuating or seesawing markets. Further, the ETFs’ 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 (see: all the Leveraged Equity ETFs here).
Still, for ETF investors, who are bullish on U.S. 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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Leveraged ETFs That More Than Doubled in April
After a brutal March, U.S. stocks came back roaring in April buoyed by unprecedented fiscal and monetary stimulus, progress in the development of a coronavirus vaccine or treatment as well as optimism over the reopening of the economy. The market is expected to reopen mostly by May 15 through Jun 1 that will revive growth and propel demand.
Additionally, the Fed in its latest Federal Open Market Committee meeting pledged to continue its historically aggressive policy stance until the economy again reaches full employment and 2% inflation. Notably, the S&P 500 is up more than 13% for the month, marking the biggest one-month gain since 1974 while the Dow Jones is up 12.4%, representing the biggest monthly gain since 1987 (read: 6 Top-Ranked ETFs Beating the Market).
The bullishness has led to 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 positive.
Below we highlighted seven leveraged equity ETFs that more than doubled over the past month (as of Apr 29). These funds will continue to be investors’ darlings provided the sentiments remain bullish.
Direxion Daily S&P Oil & Gas Exploration & Production Bull 2x Shares (GUSH - Free Report) – Up 187.9%
This fund offers a two times exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It has accumulated $305.3 million in its asset base and has a solid average daily volume of around 1.1 million shares. The expense ratio comes in at 0.95%.
Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL - Free Report) — Up 154.3%
NAIL provides leveraged exposure to homebuilders and creates three times long position on the Dow Jones U.S. Select Home Construction Index. It charges an annual fee of 95 bps and trades in a good average daily volume of about 491,000 shares. The fund has accumulated $154.6 million in its asset base.
MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report) – Up 148.4%
This ETN provides levered 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. It has been able to manage $4.6 million in its asset base while trades in average daily volume of 368,000 shares. Expense ratio comes in at 0.95% (read: Oil in Great Contango: Here's How to Play With Crude ETFs).
Direxion Daily Retail Bull 3X Shares (RETL - Free Report) – Up 132%
This ETF offers three times leveraged exposure to the S&P Retail Select Industry Index. The product has amassed about $11.3 million in its asset base, while charging 95 bps in fees per year. Its volume is lower as it exchanges around 7,000 shares a day on average.
Direxion Daily S&P Biotech Bull 3x Shares (LABU - Free Report) – Up 109.8%
This fund creates a 3x leveraged long position on the S&P Biotechnology Select Industry Index. It charges an annual fee of 95 bps and trades in a heavy average daily volume of about 2.3 million shares. The fund has AUM of $416.6 million (read: Biotech ETFs Gaining on Progress in Coronavirus Treatment).
Daily S&P 500 High Beta Bull 3X Shares (HIBL - Free Report) – Up 107.8%
This ETF offers three times exposure to the performance of the S&P 500 High Beta Index. It has gathered $11.9 million in AUM and trades in average daily volume of 9,000 shares. The fund charges 95 bps in fees per year from investors.
Direxion Daily Junior Gold Miners Index Bull 2x Shares (JNUG - Free Report) – Up 106.5%
This product provides 2x exposure to the daily performance of the MVIS Global Junior Gold Miners Index. It charges 89 bps in annual fees and has accumulated $672.9 million in its asset base. Volume is heavy, exchanging about 2.9 million in shares per day on average.
Bottom Line
While this strategy is highly beneficial for short-term traders, it could lead to huge losses compared to traditional funds in the fluctuating or seesawing markets. Further, the ETFs’ 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 (see: all the Leveraged Equity ETFs here).
Still, for ETF investors, who are bullish on U.S. 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 >>