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Amid bouts of volatility and uncertainty, the Wall Street is sizzling this summer buoyed by solid corporate earnings growth and recovering economy. The tech-heavy Nasdaq Composite Index topped 15,000 for the first time ever while the S&P 500 hit its 51st record high this year.
The Q2 earnings picture is very strong, with broad-based strength across all major sectors and the overall quarterly total on track to reach a new all-time record. Meanwhile, the U.S. economy returned to the pre-pandemic level with the GDP rising 6.6% annually in the second quarter, indicating a sustained recovery from the pandemic recession. Rapid vaccinations, reopening of businesses and trillions of dollars of government stimulus spending are powering consumer spending and resulting in robust growth.
The latest FDA full approval to Pfizer (PFE - Free Report) and BioNTech's COVID-19 vaccine, which had been under an emergency use authorization since December, has added to the strength. The move will help squash the ongoing surge in the COVID-19 Delta variant cases and lead to continued economic recovery (read: Tap the Red Hot Biotech Sector With These 2 Leveraged ETFs).
However, surge in Delta variant cases, Fed tapering talks, signs of slowdown in China’s economy and inflationary pressure kept the bulls anxious.
Amid this scenario, the demand for leveraged and inverse-leveraged ETFs has increased as these could fetch outsized returns on quick market turns in a short span. These products either create a leveraged long/short position, an inverse long/short position or a leveraged inverse long/short position in the underlying index through the use of swaps, options, future contracts and other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a very short period of time provided the trend remains a friend (see: all the Inverse Equity ETFs here).
However, these funds run the risk of huge losses compared to traditional funds in fluctuating or seesawing markets. Further, their performance could vary significantly from the actual performance of their underlying index over a longer period when compared to a shorter period (such as, weeks or months).
Still, we have highlighted some leveraged/inverse products that have gained more than 30% over the past 13 weeks though these involve a great deal of risk when compared with the traditional products. This trend might continue at least for the near term if sentiments remain the same.
GDXD seeks to offer three times inverse leveraged exposure to the S-Network MicroSectors Gold Miners Index. The ETN has accumulated $22.2 million in its asset base. It charges 95 basis points (bps) in annual fees and trades in average daily volume of about 42,000 shares.
This ETF targets the broad technology sector with three times exposure to the Technology Select Sector Index. It has AUM of $2.8 billion and charges 95 bps in fees per year. Volume is good as it exchanges around 1.3 million shares a day, on average (read: 5 Tech ETFs Outperforming the Market This Year).
It offers thrice the returns of its daily performance of the NASDAQ-100 Index while charging 95 bps in annual fees from investors. The fund amassed $14.1 billion in AUM and trades in a heavy volume of 26.1 million shares, on average.
This ETF offers two times leveraged exposure to the Indxx USA Cloud Computing Index. The product has amassed about $30.1 million in its asset base, while charging 95 bps in fees per year. It exchanges around 14,000 shares a day on average.
This fund creates three times leveraged long position in the Health Care Select Sector Index while charging 95 bps in fees a year. It has $246.1 million in AUM and trades in volumes of 59,000 shares on average (read: Healthcare ETFs Surge on FDA Full-Vaccine Nod & Deal News).
Bottom Line
Investors should note that these products are suitable only for short-term traders as these are rebalanced on a daily basis. Further, liquidity can be a big problem as it can make the products more expensive than what they appear.
Still, ETF investors seeking to tap abrupt movements can go long or short in the near term.
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5 Leveraged/Inverse ETFs Sizzling This Summer
Amid bouts of volatility and uncertainty, the Wall Street is sizzling this summer buoyed by solid corporate earnings growth and recovering economy. The tech-heavy Nasdaq Composite Index topped 15,000 for the first time ever while the S&P 500 hit its 51st record high this year.
The Q2 earnings picture is very strong, with broad-based strength across all major sectors and the overall quarterly total on track to reach a new all-time record. Meanwhile, the U.S. economy returned to the pre-pandemic level with the GDP rising 6.6% annually in the second quarter, indicating a sustained recovery from the pandemic recession. Rapid vaccinations, reopening of businesses and trillions of dollars of government stimulus spending are powering consumer spending and resulting in robust growth.
The latest FDA full approval to Pfizer (PFE - Free Report) and BioNTech's COVID-19 vaccine, which had been under an emergency use authorization since December, has added to the strength. The move will help squash the ongoing surge in the COVID-19 Delta variant cases and lead to continued economic recovery (read: Tap the Red Hot Biotech Sector With These 2 Leveraged ETFs).
However, surge in Delta variant cases, Fed tapering talks, signs of slowdown in China’s economy and inflationary pressure kept the bulls anxious.
Amid this scenario, the demand for leveraged and inverse-leveraged ETFs has increased as these could fetch outsized returns on quick market turns in a short span. These products either create a leveraged long/short position, an inverse long/short position or a leveraged inverse long/short position in the underlying index through the use of swaps, options, future contracts and other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a very short period of time provided the trend remains a friend (see: all the Inverse Equity ETFs here).
However, these funds run the risk of huge losses compared to traditional funds in fluctuating or seesawing markets. Further, their performance could vary significantly from the actual performance of their underlying index over a longer period when compared to a shorter period (such as, weeks or months).
Still, we have highlighted some leveraged/inverse products that have gained more than 30% over the past 13 weeks though these involve a great deal of risk when compared with the traditional products. This trend might continue at least for the near term if sentiments remain the same.
MicroSectors Gold Miners -3X Inverse Leveraged ETN (GDXD - Free Report) – Up 75.9%
GDXD seeks to offer three times inverse leveraged exposure to the S-Network MicroSectors Gold Miners Index. The ETN has accumulated $22.2 million in its asset base. It charges 95 basis points (bps) in annual fees and trades in average daily volume of about 42,000 shares.
Direxion Daily Technology Bull 3x Shares (TECL - Free Report) — Up 44.4%
This ETF targets the broad technology sector with three times exposure to the Technology Select Sector Index. It has AUM of $2.8 billion and charges 95 bps in fees per year. Volume is good as it exchanges around 1.3 million shares a day, on average (read: 5 Tech ETFs Outperforming the Market This Year).
ProShares UltraPro QQQ (TQQQ - Free Report) – Up 38.8%
It offers thrice the returns of its daily performance of the NASDAQ-100 Index while charging 95 bps in annual fees from investors. The fund amassed $14.1 billion in AUM and trades in a heavy volume of 26.1 million shares, on average.
Direxion Daily Cloud Computing Bull (CLDL - Free Report) – Up 37.5%
This ETF offers two times leveraged exposure to the Indxx USA Cloud Computing Index. The product has amassed about $30.1 million in its asset base, while charging 95 bps in fees per year. It exchanges around 14,000 shares a day on average.
Direxion Daily Healthcare Bull 3X Shares (CURE - Free Report) – Up 30.9%
This fund creates three times leveraged long position in the Health Care Select Sector Index while charging 95 bps in fees a year. It has $246.1 million in AUM and trades in volumes of 59,000 shares on average (read: Healthcare ETFs Surge on FDA Full-Vaccine Nod & Deal News).
Bottom Line
Investors should note that these products are suitable only for short-term traders as these are rebalanced on a daily basis. Further, liquidity can be a big problem as it can make the products more expensive than what they appear.
Still, ETF investors seeking to tap abrupt movements can go long or short in the near term.