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Leveraged/Inverse ETFs Up More Than 30% in January
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The month of January was brutal for the U.S. stock market. The S&P 500 notched its weakest January performance since 2009 while the tech-heavy Nasdaq Composite Index posted its worst January since 2008, falling into correction territory. The Russell 200 Index is in bear territory.
While most of the sectors plunged in the month, energy remained the bright spot. Higher oil prices due to supply disruptions and unprecedented demand continued to drive oil prices higher, thereby benefiting the energy sector. In such a scenario, the appeal for leveraged and inverse-leveraged ETFs increased as these fetched outsized returns on quick market turns in a short span.
MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report) , Direxion Daily S&P Biotech Bear 3x Shares (LABD - Free Report) , Daily Dow Jones Internet Bear 3X Shares (WEBS - Free Report) , Direxion Daily Semiconductor Bear 3x Shares (SOXS - Free Report) and UltraPro Short Russell2000 (SRTY - Free Report) gained more than 30% last month and might continue their strong performance if sentiments remain the same.
Most of the stock decline came on the back of a hawkish Fed that has sparked fears of lofty valuations, pushing the yields higher. Fed Chair Jerome Powell, in the latest FOMC meeting, stated that "the economy no longer needs sustained high levels of monetary policy support," and that "it will soon be appropriate to raise rates.”
The increase in interest rates will make borrowing expensive, driving up the cost of buying a new car or house, or carrying credit card debt, and thus curtail economic growth. Resurging Omicron cases and high inflation continued to add to the chaos (read: Bet on These 5 Top-Ranked ETFs Amid Tough Market Conditions).
Leveraged and Inverse-Leveraged ETFs
Leveraged and inverse-leveraged ETFs 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.
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 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 (see: all the Inverse Equity ETFs here).
Still, ETF investors seeking to tap abrupt movements can go long or short in the near term.
ETFs That Gained the Most
MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report) – Up 67.5%
MicroSectors U.S. Big Oil Index 3X Leveraged ETN provides three times (3X or 300%) 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 (read: Energy ETFs Hitting New 52-Week High).
MicroSectors U.S. Big Oil Index 3X Leveraged ETN has been able to manage $963.3 million in its asset base, while trading in an average daily volume of 311,000 shares. Expense ratio comes in at 0.95%.
Direxion Daily S&P Biotech Bear 3x Shares seeks to deliver three times the inverse daily performance of the S&P Biotechnology Select Industry Index, which includes domestic companies from the biotechnology industry.
Direxion Daily S&P Biotech Bear 3x Shares has amassed $55.9 million in its asset base and has an average daily volume of around 3.4 million shares. LABD charges investors 95 bps in annual fees.
Daily Dow Jones Internet Bear 3X Shares (WEBS - Free Report) – Up 37.9%
Daily Dow Jones Internet Bear 3X Shares provides three times inverse play on the Internet corner of the broad technology sector by tracking the Dow Jones Internet Composite Index.
Daily Dow Jones Internet Bear 3X Shares has attracted $12.6 million in its asset base and charges 95 bps in annual fees. The ETF sees an average daily volume of about 109,000 shares (read: Bet on Inverse ETFs as Nasdaq Enters Correction Territory).
Direxion Daily Semiconductor Bear 3x Shares targets the semiconductor corner of the technology sector with three times inverse leveraged exposure to the ICE Semiconductor Index.
Direxion Daily Semiconductor Bear 3x Shares has amassed about $133.3 million in its asset base while charging 95 bps in fees per year. Volume is good as it exchanges 34.2 million shares per day on average.
UltraPro Short Russell2000 targets the small-cap segment of the broad stock market, offering three times inverse exposure to the performance of the Russell 2000 Index.
With AUM of $138.4 million, Direxion Daily Cloud Computing Bear 2X Shares has expense ratio of 0.95% and trades in an average daily volume of 1.9 million shares.
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Leveraged/Inverse ETFs Up More Than 30% in January
The month of January was brutal for the U.S. stock market. The S&P 500 notched its weakest January performance since 2009 while the tech-heavy Nasdaq Composite Index posted its worst January since 2008, falling into correction territory. The Russell 200 Index is in bear territory.
While most of the sectors plunged in the month, energy remained the bright spot. Higher oil prices due to supply disruptions and unprecedented demand continued to drive oil prices higher, thereby benefiting the energy sector. In such a scenario, the appeal for leveraged and inverse-leveraged ETFs increased as these fetched outsized returns on quick market turns in a short span.
MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report) , Direxion Daily S&P Biotech Bear 3x Shares (LABD - Free Report) , Daily Dow Jones Internet Bear 3X Shares (WEBS - Free Report) , Direxion Daily Semiconductor Bear 3x Shares (SOXS - Free Report) and UltraPro Short Russell2000 (SRTY - Free Report) gained more than 30% last month and might continue their strong performance if sentiments remain the same.
Most of the stock decline came on the back of a hawkish Fed that has sparked fears of lofty valuations, pushing the yields higher. Fed Chair Jerome Powell, in the latest FOMC meeting, stated that "the economy no longer needs sustained high levels of monetary policy support," and that "it will soon be appropriate to raise rates.”
The increase in interest rates will make borrowing expensive, driving up the cost of buying a new car or house, or carrying credit card debt, and thus curtail economic growth. Resurging Omicron cases and high inflation continued to add to the chaos (read: Bet on These 5 Top-Ranked ETFs Amid Tough Market Conditions).
Leveraged and Inverse-Leveraged ETFs
Leveraged and inverse-leveraged ETFs 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.
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 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 (see: all the Inverse Equity ETFs here).
Still, ETF investors seeking to tap abrupt movements can go long or short in the near term.
ETFs That Gained the Most
MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report) – Up 67.5%
MicroSectors U.S. Big Oil Index 3X Leveraged ETN provides three times (3X or 300%) 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 (read: Energy ETFs Hitting New 52-Week High).
MicroSectors U.S. Big Oil Index 3X Leveraged ETN has been able to manage $963.3 million in its asset base, while trading in an average daily volume of 311,000 shares. Expense ratio comes in at 0.95%.
Direxion Daily S&P Biotech Bear 3x Shares (LABD - Free Report) – Up 50.7%
Direxion Daily S&P Biotech Bear 3x Shares seeks to deliver three times the inverse daily performance of the S&P Biotechnology Select Industry Index, which includes domestic companies from the biotechnology industry.
Direxion Daily S&P Biotech Bear 3x Shares has amassed $55.9 million in its asset base and has an average daily volume of around 3.4 million shares. LABD charges investors 95 bps in annual fees.
Daily Dow Jones Internet Bear 3X Shares (WEBS - Free Report) – Up 37.9%
Daily Dow Jones Internet Bear 3X Shares provides three times inverse play on the Internet corner of the broad technology sector by tracking the Dow Jones Internet Composite Index.
Daily Dow Jones Internet Bear 3X Shares has attracted $12.6 million in its asset base and charges 95 bps in annual fees. The ETF sees an average daily volume of about 109,000 shares (read: Bet on Inverse ETFs as Nasdaq Enters Correction Territory).
Direxion Daily Semiconductor Bear 3x Shares (SOXS - Free Report) – Up 31.9%
Direxion Daily Semiconductor Bear 3x Shares targets the semiconductor corner of the technology sector with three times inverse leveraged exposure to the ICE Semiconductor Index.
Direxion Daily Semiconductor Bear 3x Shares has amassed about $133.3 million in its asset base while charging 95 bps in fees per year. Volume is good as it exchanges 34.2 million shares per day on average.
UltraPro Short Russell2000 (SRTY - Free Report) – Up 30.9%
UltraPro Short Russell2000 targets the small-cap segment of the broad stock market, offering three times inverse exposure to the performance of the Russell 2000 Index.
With AUM of $138.4 million, Direxion Daily Cloud Computing Bear 2X Shares has expense ratio of 0.95% and trades in an average daily volume of 1.9 million shares.