Back to top

Image: Bigstock

5 Best-Performing Leveraged ETFs of January

Read MoreHide Full Article

The month of January was volatile for the global stock market. After hitting record highs to start the New Year on optimism over COVID-19 vaccine rollout and more stimulus from Washington, the surge in coronavirus cases and a slew of weak economic data continued to weigh on investors’ sentiment.

In fact, the retail trading frenzy in some of the stocks like GameStop Corp. (GME - Free Report) and AMC Entertainment Holdings (AMC - Free Report) by Reddit users led to heightened volatility (read: How to Trade GameStop Trading Frenzy With ETFs).

However, extended and stricter lockdowns continued to drive demand for e-commerce in everything, leading to an upside in stock prices. Solid corporate earnings added to the strength.

This has 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 the five best-performing leveraged equity ETFs that piled up handsome gains last month. These funds will continue to be investors’ darlings provided the sentiments remain bullish.

Direxion Daily Retail Bull 3X Shares (RETL - Free Report) – Up 124.7%

This ETF offers three times leveraged exposure to the S&P Retail Select Industry Index. The product has amassed about $94.7 million in its asset base, while charging 95 bps in fees per year. Its volume is lower as it exchanges around 73,000 shares a day on average.

ProShares Ultra VIX Short-Term Futures ETF (UVXY - Free Report) – Up 37.5%

This fund offers exposure to one and one-half times the daily performance of the S&P 500 VIX Short-Term Futures Index. It has accumulated $1.8 billion and an average daily volume of 53.1 million shares. UVXY charges 95 bps in annual fees.

Indxx MicroSectors Cannabis 2X Leveraged ETN (MJO - Free Report) – Up 37.2%

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 $22.6 million in its asset base and charges 95 bps in annual fees. The note has an average daily volume of 3,000 shares (read: ETFs to Watch as Biden Heads to White House).

Direxion Daily S&P Biotech Bull 3x Shares (LABU - Free Report) – Up 25.6%

This fund creates a three times leveraged long position on the S&P Biotechnology Select Industry Index. It charges an annual fee of 0.95% and trades in a heavy average daily volume of about 867,000 shares. The fund has AUM of $413 million.

Daily CSI China Internet Index Bull 2X Shares (CWEB - Free Report) – Up 25.6%

This fund offers twice the leveraged exposure to China’s Internet market by tracking the CSI Overseas China Internet Index. It charges an annual fee of 94 bps and trades in a moderate average daily volume of about 51,000 shares. The fund has accumulated AUM of $82.9 million (read: 5 Leveraged ETFs Up At Least 15% Last Week).

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 >>