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Leveraged ETFs That Gained More Than 35% to Start 2021

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Wall Street continued last year’s rally to start 2021 buoyed by optimism over COVID-19 vaccine rollout and more stimulus from Washington that is expected to result in faster-than-expected economic recovery. However, surge in coronavirus cases as well as a slew of weak economic data, including job, retail and consumer confidence, weighed on investors’ sentiment.

Last week, president-elect Joe Biden rolled out a $1.9 trillion plan to prop up the economy. The plan offers payments of $1,400 to most Americans, increased enhanced federal unemployment benefits by $100 to $400 per week and extension of these through the end of September, and $350 billion in aid to state and local governments, which were excluded from Congress’ latest package. It also seeks to raise the minimum wage to $15 per hour, provide additional funds to schools and ramp up COVID-19 testing and vaccination (read: Biden Favors $1.9T COVID Stimulus: ETFs to Win/Lose).

These have 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 some leveraged equity ETFs that piled up more than 35% to start 2021. These funds will continue to be investors’ favorites provided the sentiments remain bullish.

Indxx MicroSectors Cannabis 2X Leveraged ETN (MJO - Free Report) – Up 45%

This ETN is linked to two times leveraged performance of the Indxx MicroSectors North American Cannabis Index. The index includes North American stocks designed to track the performance of companies that provide products or services related to the medical or industrial use of cannabis or cannabis-related products. The fund has gathered $20.8 million in its asset base and charges 95 bps in annual fees. The note has an average daily volume of 2,000 shares (read: Power-packed ETFs for Your Portfolio in 2021).

Direxion Daily Regional Banks Bull 3x Shares (DPST - Free Report) – Up 38.7%

This fund seeks to deliver three times the returns of the S&P Regional Banks Select Industry Index, charging 95 bps in fees per year. It has accumulated $256.3 million in its asset base and trades in an average daily volume of around 406,000 shares (read: Bank ETFs to Consider on a Steepening Yield Curve).

Direxion Daily S&P Oil & Gas Exploration & Production Bull 2x Shares (GUSH - Free Report) – Up 38.6%

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 $609.2 million in its asset base and has a solid average daily volume of around 3.5 million shares. The expense ratio comes in at 0.95%.
Direxion Daily Retail Bull 3X Shares (RETL - Free Report) – Up 38.2%

This ETF offers three times leveraged exposure to the S&P Retail Select Industry Index. The product has amassed about $76.9 million in its asset base, while charging 95 bps in fees per year. Its volume is lower as it exchanges around 60,000 shares a 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 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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