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Best-Performing Leveraged ETFs of the First Half

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The first half of the year has had a superb run on Wall Street, which has been logging a series of record highs. The speedy economic recovery across the globe backed by a massive vaccination drive, expanded stimulus, huge infrastructure spending and reopening of economies have powered the bulls. Additionally, the return of strong corporate earnings growth and a healing labor market have bolstered investors’ confidence, driving the appeal of the riskier assets.

With just a couple of trading sessions left to end the first half, the S&P 500 is up 14.2% while the Dow Jones and the Nasdaq have gained 12% and 12.5%, respectively. The strength in value and cyclical stocks, which were battered last year, has led the S&P 500 to outperform so far this year compared to the growth and tech-laden Nasdaq Composite Index, which was an outperformer during the pandemic (read: Value Investing Wins in 1H: 7 Best-Performing ETFs).

The gains have come despite the inflation fears and the resultant concerns about sooner-than-expected policy tightening that has pushed the yields up and stoked a sell-off in growth stocks from sectors like technology.

The bullishness 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 a bunch of the best-performing leveraged equity ETFs from the different corners of the market that piled up more than 60% gains in the first half of 2021. 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 179.1%

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 $658.5 million in its asset base while trading in an average daily volume of 248,000 shares. Expense ratio comes in at 0.95% (read: Bet on Energy Sector With Leveraged ETFs).

Direxion Daily Retail Bull 3X Shares (RETL - Free Report) – Up 164.2%

This ETF offers three times leveraged exposure to the S&P Retail Select Industry Index. The product has amassed about $150.5 million in its asset base, while charging 95 bps in fees per year. It exchanges around 53,000 shares a day on average.

Daily S&P 500 High Beta Bull 3X Shares (HIBL - Free Report) – Up 113.1%

This ETF offers three times exposure to the performance of the S&P 500 High Beta Index. It has gathered $144.1 million in its asset base and trades in an average daily volume of 136,000 shares. The fund charges 95 bps in fees per year from its investors.

MicroSectors U.S. Big Banks Index 3X Leveraged ETN (BNKU - Free Report) – Up 102.5%

BNKU seeks to offer three times exposure to the Solactive MicroSectors U.S. Big Banks Index. The ETN has accumulated $101.2 million in its asset base. It charges 95 bps in annual fees and trades in an average daily volume of about 167,000 shares.

Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL - Free Report) - Up 64.1%

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 580,000 shares. The fund has accumulated $457.7 million in its asset base (read: Will Housing ETFs Continue to Suffer From Rising Material Costs?).

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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