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ETF News And Commentary

After crossing all the hurdles, U.S. stocks ranging from large caps to small caps are once again at their all-time highs, indicating that the bull still has legs. This is the second time this year that the major indices closed at record highs simultaneously since summer.

Most of the rally was driven by the proposed stimulus and inflationary proposals of the elect-President that has spread optimism in the economy and set the stage for higher interest rates. Also, the jump in oil prices on renewed hopes of OPEC reaching the deal to curb production added to the strength (read: Oil ETFs Jump on Renewed Hopes of OPEC Cut).

A moderation of dollar strength, return to earnings growth and holiday optimism also pushed the stocks higher. Further, the so-called “Great Rotation” from bonds to stocks after the stunning victory of Donald Trump has been attracting money into the stock market.

The bull trend is likely to continue in the coming months assuming that the Trump rally will stretch and seasonality boom. This is especially true given that the market has a good track record of making gains at this time of year. In particular, Thanksgiving week is generally a bullish feast for stock investors, yielding an average return of 0.32% over the three days until Wednesday before Turkey Day with positive returns 82% of the time, as per Schaeffer's Investment Research. Thanksgiving is followed by a Santa rally in late December (read: 6 ETFs & Stocks to Shower Big Gains This Thanksgiving Week).

If these were not enough, stocks have a long history of outperformance during the six-month period from November to April. Cyclical stocks from consumer discretionary, industrials, financials, and technology have benefited the most as investors look for more growth rather than being defensive when cyclical trading starts. Nevertheless, Trump’s loving sectors including healthcare will also get boost in his presidency.

This has resulted in huge demand for leveraged ETFs during this traditionally bustling time as investors seek to register big gains in a short span. Leveraged funds provide multiple exposure (i.e 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.

Below, we have highlighted 10 ETFs from various corners of the space that crushed the market over the past one month with abnormal returns piled up in a short period. These funds will remain investors’ darlings heading into the crucial holiday shopping season and Trump presidency.

Direxion Daily Regional Banks Bull 3x Shares (DPST - Free Report)

This ETF targets the regional bank corner of the financial sector with three times (3x) leveraged exposure to the Solactive Regional Bank Index. It has amassed about $2.7 million in its asset base while charges 95 bps in fees per year. Volume is paltry as it exchanges more than 2,000 shares a day on average. The fund soared 64.5% over the past one-month period (read: Are Regional Bank ETFs Best Positioned to Profit from a Trump Presidency?).

ProShares UltraPro Financial Select Sector (FINU - Free Report)

This product provides three times exposure to the daily performance of the S&P Financial Select Sector Index. It has been able to manage $10.9 million in its asset base and trades in a paltry volume of about 2,000 shares per day on average. Expense ratio is 0.95%. FINU was up 39.8% in the same timeframe.

Direxion Daily S&P Biotech Bull 3x Shares (LABU - Free Report)

This fund creates a three times leveraged long position in the S&P Biotechnology Select Industry Index. It charges an annual fee of 95 bps and trades in a huge average daily volume of about 3.7 million shares. The fund has accumulated AUM of $339.8 million and surged about 33.6% over the past one month.

Direxion Daily Small Cap Bull 3x Shares (TNA - Free Report)

This product provides a triple leveraged play to the small cap Russell 2000 Index, charging 95 bps in fees and expenses. It has been able to manage $730.5 million in its asset base and sees solid volume of 4 million shares a day on average. TNA has added 24.5% in the same time frame (read: Small Caps Win on Trump Rally: 5 Top ETFs & Stocks).

Direxion Daily S&P Oil & Gas Exploration & Production Bull 3x Shares (GUSH - Free Report)

This fund offers triple exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It has accumulated $68.4 million in its asset base. Average daily volume is solid at around 252,000 shares while expense ratio is 0.95%. The product gained 18.4% over the past one month.

Direxion Daily Mid Cap Bull 3x Shares (MIDU - Free Report)

This fund targets the mid cap space and offers triple exposure to the daily performance of the S&P MidCap 400 Index. It has amassed $55.4 million in AUM and sees moderate volume of 43,000 shares a day on average. Expense ratio comes in at 0.95%. MIDU is up 17.4% in the same time frame.

Direxion Daily Semiconductor Bull 3x Shares (SOXL - Free Report)

This ETF targets the semiconductor corner of the technology sector with three times leveraged exposure to the PHLX Semiconductor Sector Index. It has amassed about $127.1 million in its asset base while charges 95 bps in fees per year from investors. Volume is good as it exchanges more than 368,000 shares a day on average. The fund gained 17.1% over the past one-month period.

ProShares UltraPro Dow30 (UDOW - Free Report)

This product tracks the Dow Jones Industrial Average and offers three times exposure to the index. It has accumulated $102.8 million in its asset base and trades in a solid average daily volume of roughly 306,000 shares. Expense ratio comes in at 0.95%. The ETF climbed 13.2% in the same time frame.  

ProShares Ultra Industrials (UXI - Free Report)

This fund seeks two times (2x) the daily performance of the Dow Jones U.S. Industrials Index. It is unpopular and illiquid with AUM of $18.7 million and average daily volume of nearly 3,000 shares. The fund charges 95 bps in annual fees and gained 13.2% over the past one month (read: Trump Triumphs: Stocks & ETFs to Rock or Shock).

Direxion Daily Energy Bull 3x Shares (ERX - Free Report)

This fund creates a triple leveraged long position in the Energy Select Sector Index while charging 95 bps in fees a year. It is a popular and liquid option in the energy leveraged space, with AUM of $496.6 million and average trading volume of 3.2 million shares. The ETF is up 11.4% over the past one month.

Bottom Line

While this strategy is highly beneficial for short-term traders, it could lead to huge losses compared to traditional funds in fluctuating or seesaw markets. Further, their performances could vary significantly from the actual performance of their underlying index over a longer period when compared to the shorter period (such as, weeks or months) due to their compounding effect (see: all Leveraged Equity ETFs here).

Still, for ETF investors who are bullish on equities for the near term, either of the above products could make an interesting choice. Clearly, a near-term long could be intriguing for those with high-risk tolerance, and a belief that the “trend is the friend” in this corner of the investing world.

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