With 2016 drawing to a close, it is time to look back at what worked in the investment world. Leveraged ETFs sure deserve a mention here. This is especially because the market is on a tear post Donald Trump’s win and the resultant hopes of fiscal reflation.
On a year-to-date basis (as of December 27, 2016), S&P 500-based ETF
SPY gained about 11%, Dow Jones-based ETF ( DIA Quick Quote DIA - Free Report) advanced 14.5% while Nasdaq 100-based QQQ rallied around 8%. Needless to say, such stellar gains had a significant impact on the leveraged ETFs.
These ETFs provide exposure that is a multiple of the performance of the underlying index. These funds employ various investment strategies such as use of swaps, futures contracts and other derivative instruments to accomplish their objectives.
Since most of these ETFs seek to attain their goals on a daily basis, their performance could vary significantly over a longer period when compared to the short period due to their compounding effect.
Still, the space remains a hot area for investors looking for high payoffs in a short time. They must be interested to know about the top leveraged ETF performers of 2016 which could be in focus in the early phase of 2017 as well.
A Glance at the Toppers Direxion Daily Brazil Bull 3X ETF BRZU – Up 148.1%
Surprisingly, leveraged Brazil ETF has been a winner this year. The impeachment of former president Dilma Rousseff – who was accused of financing government spending illegally – pro-growth measures by the president Michel Temer and rate cuts have put Brazil ETFs on a tear. Quite expectedly, triple-leveraged Brazil ETF gained massively out of the momentum (read:
Can Brazil ETFs Keep Up Their Amazing Run?). Direxion Daily Semiconductor Bull 3X ETF SOXL – Up 137.7%
This ETF targets the semiconductor section of the technology sector with three times leveraged exposure to underlying index. Decent earnings, consolidation activities and emerging technologies have made this space a lucrative one in 2016.
Investors should also note that, semiconductor – the value-centric traditional tech area –weathered the steep correction in the market better than other high-growth tech investments in the initial phase of 2016 (read:
Will Semiconductor ETFs Repeat This Year's Success in 2017?). Direxion Daily Regional Banks Bull 3X ETF DPST – Up 119.2%
Trump’s win and Fed rate hike proved to be a blessing for banking stocks and ETFs. Benchmark U.S. Treasury bond yields were on an uphill ride since election on increased inflationary expectations while the Fed’s policy tightening played a crucial role. Investors should also note that Trump is expected to ease regulatory stringencies for smaller banks, thus benefitting leveraged regional bank ETFs like DPST big time (read:
Play Banking Bonanza with These ETFs in Trump World). Direxion Daily Russia Bull 3X ETF RUSL – Up 119.1%
About half of Russia’s exports in terms of value come from oil and natural gas as the country has the
third largest oil reserve in the world and the biggest natural gas reserve. As a result, a recovery in oil prices in 2016 did a lot in propelling Russia ETFs (read: 5 Country ETFs to Benefit from Crude Oil's Jump).
Plus, Trumpindicated his affinity toward Putin. Notably, the relationship between the U.S. and Russia was stressed when the latter annexed Crimea from Ukraine in early 2014. But now the ice seems to be melting. A pro-Russia view by Trump left a positive impact on Russia investing (read:
Will Russia ETFs Prosper Under Trump Presidency?). Direxion Daily Energy Bull 3X ETF ERX – Up 78.8%
The fund offers 300% of the performance of the energy select sector index. Given a retrieval in the oil patch amid OPEC output cut deal, energy ETFs – both regular and leveraged – have had a sound 2016 (read:
How to Bet on Oil with Leveraged ETFs). ETRACS Monthly Pay 2xLeveraged US Small Cap High Dividend ETN SMHD – Up 54.9%
Thanks to an improvement in the U.S. economic growth and Trump’s pledges to boost infrastructure spending, small-caps have benefited immensely in 2016. Plus, SMHD’s high dividend nature has gone down well with investors’ need for solid current income. Notably, the ETN yields over 12% annually.
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