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5 Best-Performing Leveraged ETFs of August

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Stocks across the globe are on track for the seventh consecutive month of gains with the MSCI's broadest index of world stocks on its best run of monthly gains since 2017-2018. The rally is being driven by strong corporate profits, widespread vaccination to support economic reopening and moderate monetary policies.

European equities are on the cusp of their longest monthly winning streak since 2013 while U.S. stocks are hovering around all-time highs. The Fed’s latest dovish stance has bolstered strong momentum in the market and investors’ risk appetite. The central bank could start scaling back its debt purchases by the end of 2021 though it is not in a rush to raise interest rates.

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 (see: all the Leveraged Equity ETFs here).

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

MicroSectors U.S. Big Banks Index 3X Leveraged ETN (BNKU - Free Report) – Up 20.4%

BNKU seeks to offer three times exposure to the Solactive MicroSectors U.S. Big Banks Index. The ETN has accumulated $131.2 million in its asset base. It charges 95 bps in annual fees and trades in an average daily volume of about 193,000 shares.

Direxion Daily S&P Biotech Bull 3x Shares (LABU - Free Report) – Up 16.9%

This fund creates three times leveraged long position on the S&P Biotechnology Select Industry Index. It charges an annual fee of 0.95% and trades in a heavy average daily volume of about 2.8 million shares. The fund has AUM of $798.8 million (read: Tap the Red Hot Biotech Sector With These 2 Leveraged ETFs).

Direxion Daily MSCI India Bull 2X Shares (INDL - Free Report) – Up 14.6%

INDL seeks to deliver twice the daily performance of the MSCI India Index, charging investors 95 bps in annual fees. The product has AUM of $96.2 million and trades in a moderate volume of about 23,000 shares per day.

Direxion Daily Technology Bull 3x Shares (TECL - Free Report) — Up 13.5%

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.

ProShares UltraPro QQQ (TQQQ - Free Report) – Up 13%

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 $13.8 billion in AUM and trades in a heavy volume of 26 million shares, on average (read: Join the Nasdaq Rally With These ETFs).

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.