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Best Leveraged ETFs of May

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Stocks across the globe logged in the fourth consecutive month of gains with the MSCI's broadest index of world stocks gaining about 1.4% in May. It marks the longest monthly rising streak for the index since August 2020, according to Refinitiv data. With this, the global stocks are now around 20% above pre-pandemic highs.

European stocks led the way higher, notching a record high at the end of the last month while U.S. equities hovered around their peaks. The gains came on the back of continued optimism over the global economic recovery despite the fact that a jump in commodity prices sparked inflation fears making investors jittery. The rise in prices could prompt the central banks to tighten policies earlier than expected (read: Commodity Prices on an Unstoppable Rally: ETFs to Benefit).

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 some best-performing leveraged equity ETFs from different corners of the market that gained in double digits last month. These funds will continue to be investors darlings, provided the sentiments remain bullish.

MicroSectors Gold Miners 3X Leveraged ETN (GDXU - Free Report) – Up 47.8%

This ETN seeks to deliver three times (3X or 300%) the performance of the S-Network MicroSectors Gold Miners Index. It has amassed $38.6 million in its asset base since its debut last December and charges 95 bps in annual fees. The product trades in an average daily volume of 193,000 shares (read: Gold Regains Luster: ETF Ways to Tap the Rally).

Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares (GUSH) – Up 21.7%

This fund offers two times exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It has accumulated $827.5 million in its asset base and the average daily volume is solid at around 1.8 million shares. The ETF charges 95 bps in annual fees.

ProShares Ultra MSCI Brazil Capped (UBR - Free Report) – Up 19.2%

This product offers two times the daily performance of the MSCI Brazil 25/50 Index, charging investors 96 bps in annual fees. It has accumulated $6.5 million in its asset base and trades in volume of 4,000 shares.

Direxion Daily MSCI Mexico Bull 3X Shares (MEXX - Free Report) - Up 18.4%

This ETF creates a three times long position in the MSCI Mexico IMI 25/50 Index, charging 95 bps in annual fees. It has AUM of $18.9 million and trades in an average daily volume of 7,000 shares.

MicroSectors U.S. Big Banks Index 3X Leveraged ETN (BNKU - Free Report) – Up 17.8%

BNKU seeks to offer three times exposure to the Solactive MicroSectors U.S. Big Banks Index. The ETN has accumulated $116.7 million in its asset base. It charges 95 bps in annual fees and trades in an average daily volume of about 143,000 shares.

Direxion Daily Russia Bull 2X Shares (RUSL - Free Report) – Up 17%

This ETF creates two times long position in the MVIS Russia Index and has amassed about $59.4 million in its asset base while charging 93 bps in fees per year. Volume is lower as it exchanges around 67,000 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 the 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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