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Tap the Nasdaq Rally With These Two Leveraged ETFs
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The tech-heavy Nasdaq Composite Index has been on an impressive rally over the past month and notched its 36th record closing of 2021. Most of the rally was powered by renewed buying in the high-growth tech giants as tapering fears eased and optimism spread over a sustained economic recovery (read: Join the Nasdaq Rally With These ETFs).
The FDA’s full approval to Pfizer (PFE - Free Report) and BioNTech's COVID-19 vaccine, which had been under emergency use authorization since December, has bolstered investors’ optimism about the economy. This is because it will help quash the ongoing surge in the COVID-19 Delta variant and lead to a continued reopening of the economy, thereby boosting activities across the sectors.
Meanwhile, the Fed in its latest conference said that the central bank will gradually begin tapering $120 billion in monthly bond purchases by the end of the year but it is in no hurry to raise interest rates. This comment has led to a sharp rise in technology stocks, which rely on easy borrowing for superior growth and tend to benefit from a low-rate environment.
Although concerns about the rising cases of Delta variant of COVID-19 and its impact on the economic recovery are weighing on investors’ sentiment,the Nasdaq Index is expected to be less affected due to its heavy reliance on technology stocks. This is because the surge in the pandemic will lead to the acceleration in e-commerce for everything, ranging from remote working to entertainment and shopping. The rapid adoption of cloud computing, big data, IoT, wearables, VR headsets, drones, virtual reality, AI, machine learning, digital communication and 5G technology will continue to drive the sector higher.
Given this, investors could easily tap the bullish trend by considering a near-term long on the Nasdaq Index. Fortunately, with the advent of ETFs, this is quite easy as there are a few options to accomplish this task. Below we highlight them and some of the key differences between each.
Investors aiming to make big gains in a short span can bet on QLD. It provides twice the return of the NASDAQ-100 Index’s daily performance and exchanges 2.2 million shares in hand, on average. The fund has an AUM of $5.6 billion and charges 95 bps in fees and expenses. It has surged 8.3% in a month.
For a more bullish approach, TQQQ could be an excellent choice. It also tracks the NASDAQ-100 Index but offers thrice the returns of its daily performance with the same expense ratio of QLD. The fund has amassed $14.8 billion in AUM and trades in a heavy volume of 26.2 million shares, on average. TQQ has returned 12.5% in a month (read: 5 Leveraged/Inverse ETFs Sizzling This Summer).
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.
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Tap the Nasdaq Rally With These Two Leveraged ETFs
The tech-heavy Nasdaq Composite Index has been on an impressive rally over the past month and notched its 36th record closing of 2021. Most of the rally was powered by renewed buying in the high-growth tech giants as tapering fears eased and optimism spread over a sustained economic recovery (read: Join the Nasdaq Rally With These ETFs).
The FDA’s full approval to Pfizer (PFE - Free Report) and BioNTech's COVID-19 vaccine, which had been under emergency use authorization since December, has bolstered investors’ optimism about the economy. This is because it will help quash the ongoing surge in the COVID-19 Delta variant and lead to a continued reopening of the economy, thereby boosting activities across the sectors.
Meanwhile, the Fed in its latest conference said that the central bank will gradually begin tapering $120 billion in monthly bond purchases by the end of the year but it is in no hurry to raise interest rates. This comment has led to a sharp rise in technology stocks, which rely on easy borrowing for superior growth and tend to benefit from a low-rate environment.
Although concerns about the rising cases of Delta variant of COVID-19 and its impact on the economic recovery are weighing on investors’ sentiment,the Nasdaq Index is expected to be less affected due to its heavy reliance on technology stocks. This is because the surge in the pandemic will lead to the acceleration in e-commerce for everything, ranging from remote working to entertainment and shopping. The rapid adoption of cloud computing, big data, IoT, wearables, VR headsets, drones, virtual reality, AI, machine learning, digital communication and 5G technology will continue to drive the sector higher.
Further, solid corporate earnings are acting as the major catalysts for the stocks this year (read: 5 Must-Watch ETF Charts of Q2 Earnings).
Given this, investors could easily tap the bullish trend by considering a near-term long on the Nasdaq Index. Fortunately, with the advent of ETFs, this is quite easy as there are a few options to accomplish this task. Below we highlight them and some of the key differences between each.
ProShares Ultra QQQ (QLD - Free Report)
Investors aiming to make big gains in a short span can bet on QLD. It provides twice the return of the NASDAQ-100 Index’s daily performance and exchanges 2.2 million shares in hand, on average. The fund has an AUM of $5.6 billion and charges 95 bps in fees and expenses. It has surged 8.3% in a month.
ProShares UltraPro QQQ (TQQQ - Free Report)
For a more bullish approach, TQQQ could be an excellent choice. It also tracks the NASDAQ-100 Index but offers thrice the returns of its daily performance with the same expense ratio of QLD. The fund has amassed $14.8 billion in AUM and trades in a heavy volume of 26.2 million shares, on average. TQQ has returned 12.5% in a month (read: 5 Leveraged/Inverse ETFs Sizzling This Summer).
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.