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5 Top-Performing Leveraged ETF Areas of Last Week

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Last week for Wall Street was all about vaccine optimism marred somewhat by rising virus cases and fears of further lockdowns. As a result, the S&P 500 and the Dow Jones indexes lost about 0.8% and 0.7%, respectively, while the tech-heavy the Nasdaq was up about 0.2%.

Pfizer Inc. (PFE - Free Report) and BioNTech SE (BNTX - Free Report) came up with encouraging updates regarding their coronavirus vaccine candidate, BNT162b2, which reflects a vaccine efficacy rate of 95%. Before this, Moderna (MRNA - Free Report) also said that its vaccine was over 94% effective in preventing the virus.

Apart from this, the global markets have been rejoicing in the possibility of a divided congress in the United States. A divided congress or balanced government means status quo. Some of Biden’s proposed policies (like tax hike) may not see an easy passage as chances of a balanced government are high.

Vaccine optimism (which indicates a sooner-than-expected return to economic normalcy) and a divided congress (which indicates the likely reiteration of the existing policy matters) mean a steady stock market. But steadily rising virus cases poured cold water on the great pharma breakthrough last week.

Against this backdrop, below we highlight a few leveraged ETF areas that gained the most last week.

Energy

The coronavirus-led global slowdown crippled oil demand. Due to the second wave of the virus attack, major parts of Europe like Germany, France and the U.K. are under lockdown now. In such a scenario, the vaccine news offered some optimism around the energy sector. Ultrashort Natural Gas Proshares (KOLD - Free Report) (up 22.4%), S&P MLP Index ETN (MLPO) (up 19.8%) and Microsectors U.S. Big Oil Index 3X ETN (NRGU) gained 18% last week.

Retail

Retail sales data came in weaker than expected last week but still the fund Direxion Retail Bull 3X Shares (RETL - Free Report) gained 17.09%. The fund’s underlying index has about 23% exposure to Internet & Direct Marketing Retail – a segment that probably received a lift from rising virus cases. Notably, online activities were hit amid the pandemic due to a no human contact mode of operation.

Cocoa

iPath Bloomberg Cocoa Subindex Total Return ETN (NIB - Free Report) added about 16% last week.  Cocoa prices jumped last week on tensions between cocoa-producing countries and manufacturers over costs. This happened despite falling demand in cocoa amid the pandemic.

Small Caps

Since small-cap stocks are more closely tied to the domestic economy, the latest hopes of a vaccine bode well for the segment. Principal U.S. Small-MidCap Multi-Factor Core Index ETF was up 15.1% last week.

On Nov 19, Treasury Secretary Steven Mnuchin “asked the Federal Reserve to shut down five emergency COVID-19 relief facilities and return $455 billion of unused funds, a move opposed by Fed Chairman Jerome Powell.”

In March, Congress approved $2.2 trillion of emergency relief under the CARES Act, which included $500 billion to enact a variety of emergency lending facilities through the Fed and guarantee loans. Out of this, only a trivial portion of the funds — $25 billion — were used.

Now Mnuchin wants to discuss the stimulus package with Democrats, probably with that unused funds. This was a winning factor for small caps last week.

Business Development

Business Development Companies (BDCs) are firms that loan out to small- and mid-sized companies at relatively higher rates and often grab debt or equity stakes in those companies. BDCs dole out high cash payments and capture the equity performance of the borrower. These are high-yielding options. ETRACS 2xMonthly Leveraged Wells Fargo Diversified Business Development Company Index ETN Series B advanced 15% last week. The fund yields 21.77% annually.

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