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Stock markets across the globe have been on a stellar ride so far this year buoyed by renewed optimism over speedy economic recovery from the pandemic-driven recession. This is especially true given hopes of further U.S. stimulus package, signs of a healing labor market, continued progress in more vaccines, rapid vaccination rollout and better-than-expected earnings.
The combination of all these factors will lead to pent-up demand, resulting in higher demand for all types of products and services in the economy. However, surging Treasury yields and growing inflationary pressure have been bothering investors lately (read: 5 ETFs to Benefit From Treasury Yield Surge).
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.
While most of the corners of the global stock market are enjoying ascent, we highlight six best-performing leveraged equity ETFs that piled up more than 50% gains through midway Q1. These funds will continue to be investors’ darlings provided the sentiments remain bullish.
MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report) – Up 84.3%
This ETN provides three times leveraged 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 $392.3 million in its asset base while trading in an average daily volume of 409,000 shares. Expense ratio comes in at 0.95%.
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 $298.5 million in its asset base and trades in an average daily volume of around 320,000 shares (read: Here's Why You Should Buy Bank ETFs Now).
Direxion Daily CSI China Internet Index Bull 2X Shares (CWEB - Free Report) – Up 71.7%
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 58,000 shares. The fund has accumulated AUM of $129.8 million.
Direxion Daily S&P Oil & Gas Exploration & Production Bull 2x Shares (GUSH - Free Report) – Up 70.7%
This fund offers two times exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It has accumulated $696.8 million in its asset base and has a solid average daily volume of around 2.6 million shares. The expense ratio comes in at 0.95%.
This ETF offers three times leveraged exposure to the S&P Retail Select Industry Index. The product has amassed about $67.6 million in its asset base, while charging 95 bps in fees per year. Its volume is lower as it exchanges around 95,000 shares a day on average.
Indxx MicroSectors Cannabis 2X Leveraged ETN – Up 54.3%
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 $25.9 million in its asset base and charges 95 bps in annual fees. The note has an average daily volume of 6,000 shares (read: Marijuana ETFs on a High on Reddit Frenzy).
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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6 Leveraged ETFs Up More Than 50% Midway Q1
Stock markets across the globe have been on a stellar ride so far this year buoyed by renewed optimism over speedy economic recovery from the pandemic-driven recession. This is especially true given hopes of further U.S. stimulus package, signs of a healing labor market, continued progress in more vaccines, rapid vaccination rollout and better-than-expected earnings.
The combination of all these factors will lead to pent-up demand, resulting in higher demand for all types of products and services in the economy. However, surging Treasury yields and growing inflationary pressure have been bothering investors lately (read: 5 ETFs to Benefit From Treasury Yield Surge).
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.
While most of the corners of the global stock market are enjoying ascent, we highlight six best-performing leveraged equity ETFs that piled up more than 50% gains through midway Q1. These funds will continue to be investors’ darlings provided the sentiments remain bullish.
MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report) – Up 84.3%
This ETN provides three times leveraged 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 $392.3 million in its asset base while trading in an average daily volume of 409,000 shares. Expense ratio comes in at 0.95%.
Direxion Daily Regional Banks Bull 3x Shares (DPST - Free Report) – Up 76.4%
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 $298.5 million in its asset base and trades in an average daily volume of around 320,000 shares (read: Here's Why You Should Buy Bank ETFs Now).
Direxion Daily CSI China Internet Index Bull 2X Shares (CWEB - Free Report) – Up 71.7%
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 58,000 shares. The fund has accumulated AUM of $129.8 million.
Direxion Daily S&P Oil & Gas Exploration & Production Bull 2x Shares (GUSH - Free Report) – Up 70.7%
This fund offers two times exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It has accumulated $696.8 million in its asset base and has a solid average daily volume of around 2.6 million shares. The expense ratio comes in at 0.95%.
Direxion Daily Retail Bull 3X Shares (RETL - Free Report) – Up 57.1%
This ETF offers three times leveraged exposure to the S&P Retail Select Industry Index. The product has amassed about $67.6 million in its asset base, while charging 95 bps in fees per year. Its volume is lower as it exchanges around 95,000 shares a day on average.
Indxx MicroSectors Cannabis 2X Leveraged ETN – Up 54.3%
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 $25.9 million in its asset base and charges 95 bps in annual fees. The note has an average daily volume of 6,000 shares (read: Marijuana ETFs on a High on Reddit Frenzy).
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 >>