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5 Best-Performing Leveraged ETFs of Q4

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Amid inflationary fears, Fed taper talks and the rapidly spreading Omicron variant of COVID-19, Wall Street ended the fourth quarter on a solid note. The S&P 500 outperformed, gaining 10.7% while the Dow Jones and the Nasdaq Composite Index climbed 7.4% and 8.3%, respectively. An improving U.S. economy, upbeat corporate earnings, strong consumer confidence and a holiday sales surge drove the market higher.

This resulted in huge demand for leveraged ETFs as investors sought to register big gains in a short span. We highlight a bunch of the best-performing leveraged equity ETFs from different corners of the market that gained 40% in the fourth quarter. These include Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL - Free Report) , Direxion Daily Semiconductor Bull 3x Shares (SOXL - Free Report) , Direxion Daily Transportation Bull 3X Shares (TPOR - Free Report) , Direxion Daily MSCI Real Estate Bull 3X Shares (DRN - Free Report) and Direxion Daily Consumer Discretionary Bull 3X Shares (WANT - Free Report) .

These funds will continue to be investors’ darlings to start the New Year, provided the sentiments remain bullish.

Leveraged ETFs

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.

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).

Investors should note that these products are suitable only for short-term traders as they 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 (see: all the Leveraged Equity ETFs here).

We have profiled the ETFs in detail below:

Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL - Free Report) - Up 84.3%

Direxion Daily Homebuilders & Supplies Bull 3X Shares provides leveraged exposure to homebuilders. It creates a three times long position in the Dow Jones U.S. Select Home Construction Index.

Direxion Daily Homebuilders & Supplies Bull 3X Shares charges an annual fee of 95 bps and trades in a good average daily volume of about 320,000 shares. The fund has accumulated $414.2 million in its asset base (read: 5 Leveraged ETFs That Gained Double-Digits in December).

Direxion Daily Semiconductor Bull 3x Shares (SOXL - Free Report) – Up 70.8%

Direxion Daily Semiconductor Bull 3x Shares targets the semiconductor corner of the technology sector with three times leveraged exposure to the ICE Semiconductor Index.

Direxion Daily Semiconductor Bull 3x Shares has amassed about $6 billion in its asset base while charging 94 bps in fees per year. Volume is good as it exchanges 15.2 million shares per day on average.

Direxion Daily Transportation Bull 3X Shares (TPOR - Free Report) – Up 53.8%

Direxion Daily Transportation Bull 3X Shares targets the transportation sector and seeks to deliver three times the daily performance of the Dow Jones Transportation Average Index.

Direxion Daily Transportation Bull 3X Shares has AUM of $78.4 million and charges 95 bps in fees and expenses. It trades in modest volumes of about 95,000 shares per day.

Direxion Daily MSCI Real Estate Bull 3X Shares (DRN - Free Report) — Up 46.8%

Direxion Daily MSCI Real Estate Bull 3X Shares seeks to deliver three times the performance of the MSCI US IMI Real Estate 25/50 Index.

Direxion Daily MSCI Real Estate Bull 3X Shares has an AUM of $149.1 million and an average daily volume of around 139,000 shares. The ETF charges 95 bps in annual fees.

Direxion Daily Consumer Discretionary Bull 3X Shares (WANT - Free Report) – Up 43.8%

Direxion Daily Consumer Discretionary Bull 3X Shares offers leveraged exposure play in the consumer discretionary sector. It provides three times exposure to the Consumer Discretionary Select Sector Index, charging 95 bps in annual fees (read: ETFs to Gain as US Consumer Confidence Improves in December).

Direxion Daily Consumer Discretionary Bull 3X Shares has AUM of $67.3 million and an average daily volume of 40,000 shares.