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5 Top-Performing Leveraged/Inverse ETFs of Q1

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Wall Street was on a wild ride in the first quarter. The war in Ukraine, the resurgence of Coronavirus cases in China and inflationary pressure led to rounds of steep selling. But the Fed rate hike and people’s confidence that the economy will withstand the escalating tensions in Ukraine rekindled investors’ interest. Additionally, Fed Chair Jerome Powell showed confidence that the American economy is strong enough to withstand tighter monetary policy.

In such a scenario, the appeal for leveraged and inverse-leveraged ETFs has increased as these fetch outsized returns on quick market turns in a short span. MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report) , Direxion Daily Metal Miners Bull 2X Shares (MNM - Free Report) , Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN - Free Report) , Direxion Daily S&P Biotech Bear 3x Shares (LABD - Free Report) and Daily Dow Jones Internet Bear 3X Shares (WEBS - Free Report) have been outperforming and might continue their strong performance if sentiments remain the same.

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, futures 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 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 Inverse Equity ETFs here).

Still, ETF investors seeking to tap abrupt movements can go long or short in the near term.

We have profiled the ETFs in detail below:

MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report) – Up 157.7%

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.

MicroSectors U.S. Big Oil Index 3X Leveraged ETN has been able to manage $1.6 billion in its asset base, while trading in an average daily volume of 260,000 shares. Expense ratio comes in at 0.95%.

Direxion Daily Metal Miners Bull 2X Shares (MNM - Free Report) – Up 78.8%

Direxion Daily Metal Miners Bull 2X Shares provides two times (2X or 200%) leveraged exposure to the S&P Metals and Mining Select Industry Index, which is designed to measure the performance of the equity securities of companies in industries of aluminum; coal & consumable fuels; copper; diversified metals & mining; gold; precious metals & minerals; silver; and steel (read: 5 Leveraged ETFs That Gained More Than 30% in March).

Direxion Daily Metal Miners Bull 2X Shares has accumulated $18.7 million in its asset base since its inception in late December. It charges 95 bps in annual fees and trades in an average daily volume of 35,000 shares.

Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN - Free Report) – Up 25%

Direxion Daily Aerospace & Defense Bull 3X Shares creates three times leveraged long position in the Dow Jones U.S. Select Aerospace & Defense Index. It charges an annual fee of 95 bps and trades in a good average daily volume of about 1.5 million shares.

Direxion Daily Aerospace & Defense Bull 3X Shares has amassed AUM of $287.7 million in its asset base (read: Aerospace and Defense ETFs Rallying on Russia-Ukraine War).

Direxion Daily S&P Biotech Bear 3x Shares (LABD - Free Report) – Up 22.1%

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 the domestic companies from the biotechnology industry.

Direxion Daily S&P Biotech Bear 3x Shares has amassed $67.4 million in its asset base and has an average daily volume of around 5 million shares. LABD charges investors 95 bps in annual fees.

Daily Dow Jones Internet Bear 3X Shares (WEBS - Free Report) – Up 21.4%

Daily Dow Jones Internet Bear 3X Shares provides a 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 $17.3 million in its asset base and charges 95 bps in annual fees. The ETF sees an average daily volume of about 217,000 shares.