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Wall Street was on a remarkable bull run in the month of August. The S&P 500 hit the 3,500 milestone for the first time in history and logged in the best August in 36 years. Meanwhile, the Nasdaq Composite Index topped the 11,000 milestone and recorded its strongest August since 2000. The Dow Jones Industrial Index ended above 28,000 for the first time in six months and registered its best monthly return since 1984.
The rally came on a solid rebound in technology stocks, positive development in treatments and vaccines for COVID-19, and the prospects of super-low interest rates for a prolonged period. In particular, the Federal Reserve unveiled an aggressive new policy that would keep rates lower for longer and tolerate higher inflation levels while supporting the labor market as much as possible.
The solid fundamentals and a soaring stock market have resulted in huge demand for leveraged ETFs as investors seek to register big gains in a short span. Leveraged funds provide multiple exposure (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 highlight some leveraged equity ETFs that have gained more than 25% in August. These funds will continue to be investors’ darlings provided the sentiments remain bullish.
BMO REX MicroSectors FANG+ Index 3X Leveraged ETN (FNGU - Free Report) – Up 67.1%
This note seeks to offer three times leveraged exposure to the NYSE FANG Index, charging 95 bps in annual fees. The ETN has accumulated $705.2 million in its asset base and trades in average daily volume of 539,000 shares.
TPOR targets the transportation sector and seeks to deliver thrice the daily performance of the Dow Jones Transportation Average. The product has AUM of $46.3 million and charges 95 bps in fees and expenses. It trades in lower volumes of about 187,000 shares per day.
This ETF seeks to offer three times exposure to the Consumer Discretionary Select Sector Index, charging 95 bps in annual fees. It has AUM of $17.3 million and average daily volume of 35,000 shares (read: 5 Sector ETFs Soaring Halfway Through Q3).
This ETF provides three times the returns of the daily performance of the Nasdaq-100 Index. It is one of the popular and liquid options in the leveraged large-cap space with AUM of $8.4 billion and average daily volume of 30.6 million shares. TQQQ charges 95 bps in fees per year.
This ETF targets the broad technology sector with three times exposure to the Technology Select Sector Index. It has amassed about $2.1 billion in its asset base and charges 95 bps in fees per year. Volume is good as it exchanges around 30.6 million shares a day, on average (read: 5 Tech ETFs at the Forefront of the Latest Sector Rally).
Direxion Daily Communication Services Index Bull 3X Shares – Up 27.9%
This ETF seeks to deliver three times the performance of the Communication Services Select Sector Index, charging investors 95 bps in annual fees. It has AUM of $50.9 million and average daily volume of 12,000 shares.
This fund seeks to provide three times exposure to Industrial Select Sector Index, charging investors 95 bps in annual fees. It has amassed $19 million in its asset base and trades in average daily volume of 78,000 shares.
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, the funds’ 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).
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Best-Performing Equity Leveraged ETFs of August
Wall Street was on a remarkable bull run in the month of August. The S&P 500 hit the 3,500 milestone for the first time in history and logged in the best August in 36 years. Meanwhile, the Nasdaq Composite Index topped the 11,000 milestone and recorded its strongest August since 2000. The Dow Jones Industrial Index ended above 28,000 for the first time in six months and registered its best monthly return since 1984.
The rally came on a solid rebound in technology stocks, positive development in treatments and vaccines for COVID-19, and the prospects of super-low interest rates for a prolonged period. In particular, the Federal Reserve unveiled an aggressive new policy that would keep rates lower for longer and tolerate higher inflation levels while supporting the labor market as much as possible.
Better-than-expected earnings releases and rounds of economic data, which indicate that the American economy is recovering, added to the strength (read: ETFs to Tap Warren Buffetts Investing Ideas as He Turns 90).
The solid fundamentals and a soaring stock market have resulted in huge demand for leveraged ETFs as investors seek to register big gains in a short span. Leveraged funds provide multiple exposure (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 highlight some leveraged equity ETFs that have gained more than 25% in August. These funds will continue to be investors’ darlings provided the sentiments remain bullish.
BMO REX MicroSectors FANG+ Index 3X Leveraged ETN (FNGU - Free Report) – Up 67.1%
This note seeks to offer three times leveraged exposure to the NYSE FANG Index, charging 95 bps in annual fees. The ETN has accumulated $705.2 million in its asset base and trades in average daily volume of 539,000 shares.
Direxion Daily Transportation Bull 3X Shares (TPOR - Free Report) – Up 39.2%
TPOR targets the transportation sector and seeks to deliver thrice the daily performance of the Dow Jones Transportation Average. The product has AUM of $46.3 million and charges 95 bps in fees and expenses. It trades in lower volumes of about 187,000 shares per day.
Direxion Daily Consumer Discretionary Bull (WANT - Free Report) – Up 33.1%
This ETF seeks to offer three times exposure to the Consumer Discretionary Select Sector Index, charging 95 bps in annual fees. It has AUM of $17.3 million and average daily volume of 35,000 shares (read: 5 Sector ETFs Soaring Halfway Through Q3).
ProShares UltraPro QQQ (TQQQ - Free Report) – Up 30.3%
This ETF provides three times the returns of the daily performance of the Nasdaq-100 Index. It is one of the popular and liquid options in the leveraged large-cap space with AUM of $8.4 billion and average daily volume of 30.6 million shares. TQQQ charges 95 bps in fees per year.
Direxion Daily Technology Bull 3x Shares (TECL - Free Report) — Up 29.2%
This ETF targets the broad technology sector with three times exposure to the Technology Select Sector Index. It has amassed about $2.1 billion in its asset base and charges 95 bps in fees per year. Volume is good as it exchanges around 30.6 million shares a day, on average (read: 5 Tech ETFs at the Forefront of the Latest Sector Rally).
Direxion Daily Communication Services Index Bull 3X Shares – Up 27.9%
This ETF seeks to deliver three times the performance of the Communication Services Select Sector Index, charging investors 95 bps in annual fees. It has AUM of $50.9 million and average daily volume of 12,000 shares.
Direxion Daily Industrials Bull 3X Shares (DUSL - Free Report) – Up 26.2%
This fund seeks to provide three times exposure to Industrial Select Sector Index, charging investors 95 bps in annual fees. It has amassed $19 million in its asset base and trades in average daily volume of 78,000 shares.
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, the funds’ 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).
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 >>