We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Amid huge volatility and uncertainty, the appeal for leveraged ETFs has been soaring although these products occupy a small slice of the ETF space.
Leveraged ETFs provide multiple exposure (2X or 3X) to the daily performance of the underlying index. These funds employ various investment strategies such as the use of swaps, futures contracts and other derivative instruments to accomplish their objectives. Due to their compounding effect, investors can enjoy higher returns in a very short period of time, provided the trend remains a friend (see: all Leveraged Equity ETFs here).
Since most of these ETFs seek to attain their goals on a daily basis, their performance could vary significantly from the performance of their underlying index or benchmark over a longer period when compared to a shorter period (such as weeks, months or years) due to their compounding effect. This phenomenon can be explained with an example below.
Imagine that an investor buys a leveraged ETF for $100 that has two times (2X) exposure to the underlying index of say 10,000. If the index goes up by 1% to 10,100 on day 1, then the market price of the ETF moves up by 2% to $102 on the same day. Again, when the index goes up by another 1% to 10,201 on day 2, the ETF value goes up by another 2% to $104.04. Over the last two days, the index is up 2.01%, while the ETF is up 4.04% (approximately two times as stated by the fund objective). Thus, the performance of the fund and index can vary if we take longer periods for consideration.
Investors should also note that leveraged ETFs involve a great deal of risk when compared to the traditional funds. They are often more costly and can be less tax-efficient, as they can see capital gains through the use of swaps and other derivative instruments.
How to Play?
The space remains incredibly popular for investors looking to mint money in a very short period of time, provided the trend remains a friend. For these traders, there are close to 135 leveraged funds in the space targeting different asset classes.
In this article, we take a look at the 10 biggest and most-popular ETFs for those investors who are new to the leveraged technique. While these products might not necessarily be the best choices in their respective markets, they have become popular vehicles in this sector. Here’s a quick guide:
Leveraged Factor: 3x Benchmark Index: NASDAQ-100 Index
ProShares UltraPro QQQ is the most-popular and liquid ETF in the leveraged space, with AUM of $14.6 billion and an average daily volume of 111 million shares a day. The fund seeks to deliver three times the return of the daily performance of the NASDAQ-100 Index, charging investors 0.95% in expense ratio.
Leveraged Factor: 3x Benchmark Index: PHLX Semiconductor Sector Index
Direxion Daily Semiconductor Bull 3x Shares targets the semiconductor corner of the technology sector with three times leveraged exposure to the ICE Semiconductor Index. It has amassed about $5.4 billion in its asset base while charging 89 bps in fees per year. Volume is good as it exchanges 46.8 million shares per day, on average (read: ETF Asset Report of April).
Leveraged Factor: 2x Benchmark Index: NASDAQ-100 Index
ProShares Ultra QQQ also tracks the NASDAQ-100 Index but offers twice the returns of the daily performance with the same expense ratio of TQQQ. It has managed AUM of $3.8 billion and sees 8 million in average daily volume.
Leveraged Factor: 2x Benchmark Index: S&P 500 Index
ProShares Ultra S&P500 ETF provides two times exposure to the S&P 500 Index, charging 89 bps in fees and expenses. It has been able to manage $3.5 billion in its asset base with a daily trading volume of around 5.9 million shares (read: Guide to the S&P 500 ETF Investing).
Leveraged Factor: 3x Benchmark Index: S&P 500 Index
Direxion Daily S&P 500 Bull 3x Shares creates 3X long position in the S&P 500 Index with an expense ratio of 0.93%. It has AUM of $3 billion and trades in an average daily volume of nearly 8.4 million shares.
Leveraged Factor: 3x Benchmark Index: S&P 500 Index
ProShares UltraPro S&P500 ETF provides triple leveraged play to the S&P 500 Index, charging 91 bps in fees and expenses. It has been able to manage $2.6 billion in its asset base with a daily trading volume of around 9.7 million shares.
Leveraged Factor: 3x Benchmark Index: Russell 1000 Financials 40 Act 15/22.5 Daily Capped Index
Direxion Daily Financial Bull 3x Shares seeks to make a large profit from the bullish trend in the financial sector. It provides three times exposure to the performance of the Russell 1000 Financials 40 Act 15/22.5 Daily Capped Index. The fund has amassed nearly $2.5 billion in its asset base while trading in a volume of around 1.6 million shares. It charges 90 bps in annual fees.
Leveraged Factor: 3x Benchmark Index: Technology Select Sector Index
Direxion Daily Technology Bull 3x Shares targets the broad technology sector with three times exposure to the Technology Select Sector Index. It has amassed about $2 billion in its asset base and charges 93 bps in fees per year. Volume is good as it exchanges around 2 million shares a day, on average (read: Grab These Top-Ranked Tech ETFs to Buy the Dip).
MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report)
Leveraged Factor: 3x Benchmark Index: Solactive MicroSectors U.S. Big Oil Index
MicroSectors U.S. Big Oil Index 3X Leveraged ETN provides three times 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. It has been able to manage $1.6 billion in its asset base, while trading in an average daily volume of 162,000 shares. Expense ratio comes in at 0.95%.
Direxion Daily Small Cap Bull 3x Shares (TNA - Free Report)
Leveraged Factor: 3x Benchmark Index: Russell 2000 Index
Direxion Daily Small Cap Bull 3x Shares offers triple exposure to the small-cap space by tracking the Russell 2000 Index, charging 91 bps in fees and expenses. It has amassed $1.4 billion in its asset base and sees a solid volume of 9.3 million shares a day on average.
Bottom Line
Investors should note that ProShares and Direxion have been the leaders in the leveraged ETF space, with most of the popular products coming from these issuers. These ETFs are not confined to one asset class or a specific sector but are spread out across various corners of the world. With a bullish outlook, these funds could pile up abnormal returns in a shorter period of time.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
A Guide to the 10 Most-Popular Leveraged ETFs
Amid huge volatility and uncertainty, the appeal for leveraged ETFs has been soaring although these products occupy a small slice of the ETF space.
Leveraged ETFs provide multiple exposure (2X or 3X) to the daily performance of the underlying index. These funds employ various investment strategies such as the use of swaps, futures contracts and other derivative instruments to accomplish their objectives. Due to their compounding effect, investors can enjoy higher returns in a very short period of time, provided the trend remains a friend (see: all Leveraged Equity ETFs here).
Since most of these ETFs seek to attain their goals on a daily basis, their performance could vary significantly from the performance of their underlying index or benchmark over a longer period when compared to a shorter period (such as weeks, months or years) due to their compounding effect. This phenomenon can be explained with an example below.
Imagine that an investor buys a leveraged ETF for $100 that has two times (2X) exposure to the underlying index of say 10,000. If the index goes up by 1% to 10,100 on day 1, then the market price of the ETF moves up by 2% to $102 on the same day. Again, when the index goes up by another 1% to 10,201 on day 2, the ETF value goes up by another 2% to $104.04. Over the last two days, the index is up 2.01%, while the ETF is up 4.04% (approximately two times as stated by the fund objective). Thus, the performance of the fund and index can vary if we take longer periods for consideration.
Investors should also note that leveraged ETFs involve a great deal of risk when compared to the traditional funds. They are often more costly and can be less tax-efficient, as they can see capital gains through the use of swaps and other derivative instruments.
How to Play?
The space remains incredibly popular for investors looking to mint money in a very short period of time, provided the trend remains a friend. For these traders, there are close to 135 leveraged funds in the space targeting different asset classes.
In this article, we take a look at the 10 biggest and most-popular ETFs for those investors who are new to the leveraged technique. While these products might not necessarily be the best choices in their respective markets, they have become popular vehicles in this sector. Here’s a quick guide:
ProShares UltraPro QQQ (TQQQ - Free Report)
Leveraged Factor: 3x
Benchmark Index: NASDAQ-100 Index
ProShares UltraPro QQQ is the most-popular and liquid ETF in the leveraged space, with AUM of $14.6 billion and an average daily volume of 111 million shares a day. The fund seeks to deliver three times the return of the daily performance of the NASDAQ-100 Index, charging investors 0.95% in expense ratio.
Direxion Daily Semiconductor Bull 3x Shares (SOXL - Free Report)
Leveraged Factor: 3x
Benchmark Index: PHLX Semiconductor Sector Index
Direxion Daily Semiconductor Bull 3x Shares targets the semiconductor corner of the technology sector with three times leveraged exposure to the ICE Semiconductor Index. It has amassed about $5.4 billion in its asset base while charging 89 bps in fees per year. Volume is good as it exchanges 46.8 million shares per day, on average (read: ETF Asset Report of April).
ProShares Ultra QQQ (QLD - Free Report)
Leveraged Factor: 2x
Benchmark Index: NASDAQ-100 Index
ProShares Ultra QQQ also tracks the NASDAQ-100 Index but offers twice the returns of the daily performance with the same expense ratio of TQQQ. It has managed AUM of $3.8 billion and sees 8 million in average daily volume.
ProShares Ultra S&P500 ETF (SSO - Free Report)
Leveraged Factor: 2x
Benchmark Index: S&P 500 Index
ProShares Ultra S&P500 ETF provides two times exposure to the S&P 500 Index, charging 89 bps in fees and expenses. It has been able to manage $3.5 billion in its asset base with a daily trading volume of around 5.9 million shares (read: Guide to the S&P 500 ETF Investing).
Direxion Daily S&P 500 Bull 3x Shares (SPXL - Free Report)
Leveraged Factor: 3x
Benchmark Index: S&P 500 Index
Direxion Daily S&P 500 Bull 3x Shares creates 3X long position in the S&P 500 Index with an expense ratio of 0.93%. It has AUM of $3 billion and trades in an average daily volume of nearly 8.4 million shares.
ProShares UltraPro S&P500 ETF (UPRO - Free Report)
Leveraged Factor: 3x
Benchmark Index: S&P 500 Index
ProShares UltraPro S&P500 ETF provides triple leveraged play to the S&P 500 Index, charging 91 bps in fees and expenses. It has been able to manage $2.6 billion in its asset base with a daily trading volume of around 9.7 million shares.
Direxion Daily Financial Bull 3x Shares (FAS - Free Report)
Leveraged Factor: 3x
Benchmark Index: Russell 1000 Financials 40 Act 15/22.5 Daily Capped Index
Direxion Daily Financial Bull 3x Shares seeks to make a large profit from the bullish trend in the financial sector. It provides three times exposure to the performance of the Russell 1000 Financials 40 Act 15/22.5 Daily Capped Index. The fund has amassed nearly $2.5 billion in its asset base while trading in a volume of around 1.6 million shares. It charges 90 bps in annual fees.
Direxion Daily Technology Bull 3x Shares (TECL - Free Report)
Leveraged Factor: 3x
Benchmark Index: Technology Select Sector Index
Direxion Daily Technology Bull 3x Shares targets the broad technology sector with three times exposure to the Technology Select Sector Index. It has amassed about $2 billion in its asset base and charges 93 bps in fees per year. Volume is good as it exchanges around 2 million shares a day, on average (read: Grab These Top-Ranked Tech ETFs to Buy the Dip).
MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report)
Leveraged Factor: 3x
Benchmark Index: Solactive MicroSectors U.S. Big Oil Index
MicroSectors U.S. Big Oil Index 3X Leveraged ETN provides three times 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. It has been able to manage $1.6 billion in its asset base, while trading in an average daily volume of 162,000 shares. Expense ratio comes in at 0.95%.
Direxion Daily Small Cap Bull 3x Shares (TNA - Free Report)
Leveraged Factor: 3x
Benchmark Index: Russell 2000 Index
Direxion Daily Small Cap Bull 3x Shares offers triple exposure to the small-cap space by tracking the Russell 2000 Index, charging 91 bps in fees and expenses. It has amassed $1.4 billion in its asset base and sees a solid volume of 9.3 million shares a day on average.
Bottom Line
Investors should note that ProShares and Direxion have been the leaders in the leveraged ETF space, with most of the popular products coming from these issuers. These ETFs are not confined to one asset class or a specific sector but are spread out across various corners of the world. With a bullish outlook, these funds could pile up abnormal returns in a shorter period of time.