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5 Best-Leveraged ETFs of the First Quarter

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Amid bouts of volatility triggered by the tech sell-off and tax hike worries, Wall Street ended the first quarter on a high note with the Dow Jones and the S&P 500 logging the fourth consecutive quarter of positive gains.

The combination of rapid COVID-19 vaccinations, progress on vaccines, and an unprecedented stimulus have been the major catalysts. President Joe Biden last week unveiled an additional $2 trillion spending plan over 10 years largely toward improving transportation, communication and power infrastructure. The infrastructure plan will be paired with an additional $1 trillion in spending focused on social programs and is expected to be unveiled in April.

Additionally, bouts of upbeat data underscore confidence in the economy, bolstering the risk appetite. The U.S. economy added 916,000 jobs in March — the best gain since August and the unemployment rate fell to a pandemic low of 6%. Americans are growing optimistic about an economic recovery. This is especially true as the University of Michigan’s final sentiment index climbed to a pandemic high of 84.9 in late March from a preliminary reading of 83. The Conference Board on consumer confidence index also jumped to 109.7 in March — the highest level since the onset of the pandemic in March 2020 (read: 5 ETFs to Ride on Rising Consumer Confidence).

The accelerating economic growth 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 from the different corners of the market that piled up more than 75% gains last quarter. 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 140%

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 $481.7 million in its asset base while trading in an average daily volume of 360,000 shares. Expense ratio comes in at 0.95% (read: 4 Leveraged ETFs to Tap the Soaring Energy Sector).

Direxion Daily Retail Bull 3X Shares (RETL - Free Report) – Up 116.7%

This ETF offers three times leveraged exposure to the S&P Retail Select Industry Index. The product has amassed about $101.7 million in its asset base, while charging 95 bps in fees per year. It exchanges around 113,000 shares a day on average.

Direxion Daily Regional Banks Bull 3x Shares (DPST - Free Report) – Up 97.2%

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 $459.5 million in its asset base and trades in an average daily volume of around 307,000 shares (read: Bank ETFs Tumble on Archegos Downfall: What's in Store?).

Daily S&P 500 High Beta Bull 3X Shares (HIBL - Free Report) – Up 82.9%

This ETF offers three times exposure to the performance of the S&P 500 High Beta Index. It has gathered $102.4 million in its asset base and trades in an average daily volume of 201,000 shares. The fund charges 95 bps in fees per year from its investors.

Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL - Free Report) - Up 77.9%

NAIL provides leveraged exposure to homebuilders and creates a three times long position in the Dow Jones U.S. Select Home Construction Index. It charges an annual fee of 95 bps and trades in a good average daily volume of about 608,000 shares. The fund has accumulated $380.8 million in its asset base (read: Can Housing ETFs Remain Red-Hot in 2021?).

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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