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January proved to be a volatile month for Wall Street. While overstretched valuations and easing of rate cut bets took a toll on investors’ sentiment, strong corporate earnings, AI developments and rekindled confidence in the tech sector fueled a rally in the stock market. As such, the three major benchmarks managed to close the month in green.
This has resulted in increased demand for leveraged and inverse-leveraged ETFs as these fetch outsized returns on quick market turns in a short span. We highlight a bunch of the best-performing leveraged or inverse leveraged ETFs that have gained in double digits in January. These include AdvisorShares MSOS 2x Daily ETF (MSOX - Free Report) , MicroSectors Gold Miners -3X Inverse Leveraged ETN (GDXD - Free Report) , MAX Auto Industry -3x Inverse Leveraged ETN (CARD - Free Report) , ProShares Ultra Semiconductors (USD - Free Report) and Direxion Daily MSCI Real Estate Bear 3X Shares (DRV - Free Report) . The funds will remain investors’ darlings, provided sentiments remain similar.
The S&P 500 reached a record high, topping the 4,900 milestone on a tech resurge and bouts of solid economic data. The personal consumption expenditure index — the Federal Reserve's preferred inflation gauge — rose 2.6% in December. This marks the third time that inflation is below 3%. Meanwhile, the economy grew at a much more rapid pace than expected, with GDP rising at a 3.3% annualized rate in the fourth quarter of 2023, up from the Wall Street consensus estimate growth rate of 2% (read: U.S. GDP Growth Beats Expectations in Q4: ETFs to Benefit).
Additionally, the U.S. government announced the launch of a pilot program for AI research in collaboration with major tech companies and federal agencies under the umbrella of the National Science Foundation. This move likely contributed to the positive sentiment in the tech sector.
Meanwhile, the Fed, in its latest meeting, has kept interest rates steady in a range of 5.25%-5.50%, the highest since 2001. The central bank signaled that it is in no rush to cut rates until it has gained greater confidence that inflation is moving sustainably toward 2%. This has pushed back market expectations of a cut as early as March and led to a sell-off in the stocks on the last day of January.
The likelihood that the Fed would cut rates by 25 bps at the March meeting fell to 36.4% from 54.1% before the announcement, according to the CME FedWatch tool.
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 or other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a short period, provided the trend remains a friend (see: all the Inverse Equity ETFs here).
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 they appear.
AdvisorShares MSOS 2x Daily ETF is designed for sophisticated investors looking to gain magnified exposure to the U.S. cannabis sector. It offers daily investment results that correspond to two times the daily performance of the AdvisorShares Pure US Cannabis ETF. AdvisorShares MSOS 2x Daily ETF has accumulated $65.2 million in its asset base. It charges 1.13% in annual fees and trades in a volume of 628,000 shares a day on average (read: Cannabis ETFs Outperform in January).
MicroSectors Gold Miners -3X Inverse Leveraged ETN seeks to offer three times inverse leveraged exposure to the S-Network MicroSectors Gold Miners Index. It has accumulated $51.5 million in its asset base and trades in an average daily volume of 2 million shares. GDXD charges 95 bps in annual fees (read: Inverse ETFs Soar at the Start of 2024).
MAX Auto Industry -3x Inverse Leveraged ETN (CARD - Free Report) – Up 27.8%
MAX Auto Industry -3x Inverse Leveraged ETN seeks to offer three times inverse exposure to the daily performance of the Prime Auto Industry Index. It charges 95 bps in annual fees and has accumulated $3.3 million in its asset base. MAX Auto Industry -3x Inverse Leveraged ETN trades in an average daily volume of about 300 shares.
ProShares Ultra Semiconductors (USD - Free Report) – Up 17.5%
ProShares Ultra Semiconductors offers two times exposure to the daily performance of the Dow Jones U.S. Semiconductors Index. It has gathered $469.3 million in its asset base and trades in an average daily volume of 199,000 shares. ProShares Ultra Semiconductors charges 95 bps in fees per year from investors.
Direxion Daily MSCI Real Estate Bear 3X Shares (DRV - Free Report) – Up 16.3%
Direxion Daily MSCI Real Estate Bear 3X Shares seeks to deliver three times the inverse performance of Real Estate Select Sector Index. It has AUM of $100.2 million and an average daily volume of around 239,000 shares. Direxion Daily MSCI Real Estate Bear 3X Shares charges 95 bps in fees per year.
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5 Best Leveraged or Inverse ETFs of January
January proved to be a volatile month for Wall Street. While overstretched valuations and easing of rate cut bets took a toll on investors’ sentiment, strong corporate earnings, AI developments and rekindled confidence in the tech sector fueled a rally in the stock market. As such, the three major benchmarks managed to close the month in green.
This has resulted in increased demand for leveraged and inverse-leveraged ETFs as these fetch outsized returns on quick market turns in a short span. We highlight a bunch of the best-performing leveraged or inverse leveraged ETFs that have gained in double digits in January. These include AdvisorShares MSOS 2x Daily ETF (MSOX - Free Report) , MicroSectors Gold Miners -3X Inverse Leveraged ETN (GDXD - Free Report) , MAX Auto Industry -3x Inverse Leveraged ETN (CARD - Free Report) , ProShares Ultra Semiconductors (USD - Free Report) and Direxion Daily MSCI Real Estate Bear 3X Shares (DRV - Free Report) . The funds will remain investors’ darlings, provided sentiments remain similar.
The S&P 500 reached a record high, topping the 4,900 milestone on a tech resurge and bouts of solid economic data. The personal consumption expenditure index — the Federal Reserve's preferred inflation gauge — rose 2.6% in December. This marks the third time that inflation is below 3%. Meanwhile, the economy grew at a much more rapid pace than expected, with GDP rising at a 3.3% annualized rate in the fourth quarter of 2023, up from the Wall Street consensus estimate growth rate of 2% (read: U.S. GDP Growth Beats Expectations in Q4: ETFs to Benefit).
Additionally, the U.S. government announced the launch of a pilot program for AI research in collaboration with major tech companies and federal agencies under the umbrella of the National Science Foundation. This move likely contributed to the positive sentiment in the tech sector.
Meanwhile, the Fed, in its latest meeting, has kept interest rates steady in a range of 5.25%-5.50%, the highest since 2001. The central bank signaled that it is in no rush to cut rates until it has gained greater confidence that inflation is moving sustainably toward 2%. This has pushed back market expectations of a cut as early as March and led to a sell-off in the stocks on the last day of January.
The likelihood that the Fed would cut rates by 25 bps at the March meeting fell to 36.4% from 54.1% before the announcement, according to the CME FedWatch tool.
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 or other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a short period, provided the trend remains a friend (see: all the Inverse Equity ETFs here).
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 they appear.
AdvisorShares MSOS 2x Daily ETF (MSOX - Free Report) – Up 68.2%
AdvisorShares MSOS 2x Daily ETF is designed for sophisticated investors looking to gain magnified exposure to the U.S. cannabis sector. It offers daily investment results that correspond to two times the daily performance of the AdvisorShares Pure US Cannabis ETF. AdvisorShares MSOS 2x Daily ETF has accumulated $65.2 million in its asset base. It charges 1.13% in annual fees and trades in a volume of 628,000 shares a day on average (read: Cannabis ETFs Outperform in January).
MicroSectors Gold Miners -3X Inverse Leveraged ETN (GDXD - Free Report) – Up 32.3%
MicroSectors Gold Miners -3X Inverse Leveraged ETN seeks to offer three times inverse leveraged exposure to the S-Network MicroSectors Gold Miners Index. It has accumulated $51.5 million in its asset base and trades in an average daily volume of 2 million shares. GDXD charges 95 bps in annual fees (read: Inverse ETFs Soar at the Start of 2024).
MAX Auto Industry -3x Inverse Leveraged ETN (CARD - Free Report) – Up 27.8%
MAX Auto Industry -3x Inverse Leveraged ETN seeks to offer three times inverse exposure to the daily performance of the Prime Auto Industry Index. It charges 95 bps in annual fees and has accumulated $3.3 million in its asset base. MAX Auto Industry -3x Inverse Leveraged ETN trades in an average daily volume of about 300 shares.
ProShares Ultra Semiconductors (USD - Free Report) – Up 17.5%
ProShares Ultra Semiconductors offers two times exposure to the daily performance of the Dow Jones U.S. Semiconductors Index. It has gathered $469.3 million in its asset base and trades in an average daily volume of 199,000 shares. ProShares Ultra Semiconductors charges 95 bps in fees per year from investors.
Direxion Daily MSCI Real Estate Bear 3X Shares (DRV - Free Report) – Up 16.3%
Direxion Daily MSCI Real Estate Bear 3X Shares seeks to deliver three times the inverse performance of Real Estate Select Sector Index. It has AUM of $100.2 million and an average daily volume of around 239,000 shares. Direxion Daily MSCI Real Estate Bear 3X Shares charges 95 bps in fees per year.