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Leveraged ETFs have been gaining huge popularity with investors positioning themselves for amplified gains amid market volatility and uncertainty.
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 an investor purchases a leveraged ETF for $100 that provides two times (2×) exposure to an underlying index, which starts at a value of 10,000. On day 1, if the index rises by 1% to 10,100, the ETF increases by 2% to $102. On day 2, the index gains another 1%, reaching 10,201, and the ETF rises another 2%, ending at $104.04. Over the two days, the index has increased by approximately 2.01%, while the ETF has gained about 4.04%—roughly twice the index return, in line with the fund’s 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 traditional funds. They are often more costly and can be less tax-efficient, as they can generate capital gains through the use of swaps and other derivative instruments.
Here’s 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 more than 300 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 $24.5 billion and an average daily volume of 95 million shares a day. The fund seeks to deliver three times the return of the daily performance of the NASDAQ-100 Index, charging investors 0.84% in expense ratio.
Leveraged Factor: 3x Benchmark Index: NYSE Semiconductor Index
Direxion Daily Semiconductor Bull 3x Shares targets the semiconductor corner of the technology sector with three times leveraged exposure to the NYSE Semiconductor Index. It has amassed about $11.7 billion in its asset base while charging 89 bps in fees per year. Volume is good as it exchanges 193 million shares per day, on average (read: 5 Most Heavily Traded ETFs of the Past 3 Months).
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 an expense ratio of 0.95%. It has managed AUM of $7.7 billion and sees 4 million in average daily volume.
Leveraged Factor: 2x Underlying Stock: Tesla (TSLA - Free Report)
With AUM of $6.5 billion, Direxion Daily TSLA Bull 2X Shares is by far the largest U.S.-listed single-stock ETF on the market. It offers two times the daily percentage change of the common stock of Tesla, charging 84 bps in annual fees. TSLL trades in a heavy volume of 211.5 million shares.
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 $5.7 billion in its asset base with a daily trading volume of around 2.5 million shares (read: What's Next for S&P 500 ETFs? History and Valuation Offer Clues).
Leveraged Factor: 3x Benchmark Index: S&P 500 Index
Direxion Daily S&P 500 Bull 3x Shares creates a 3X long position in the S&P 500 Index with an expense ratio of 0.85%. It has AUM of $4.8 billion and trades in an average daily volume of nearly 5 million shares.
GraniteShares 2x Long NVDA Daily ETF magnifies exposure to a single trade, seeking two times the daily percentage change of the common stock of NVDA. It has an expense ratio of 1.15% and has amassed $4.2 billion in its asset base.
Leveraged Factor: 3x Benchmark Index: S&P 500 Index
ProShares UltraPro S&P500 ETF provides a triple-leveraged play to the S&P 500 Index, charging 91 bps in fees and expenses. It has been able to manage $3.9 billion in its asset base with a daily trading volume of around 5 million shares.
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 $3 billion in its asset base and charges 89 bps in fees per year. Volume is good as it exchanges around 2 million shares a day, on average.
Leveraged Factor: 3x Benchmark Index: Financial Select Sector 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 Financial Select Sector Index. The fund has amassed $2.5 billion in its asset base while trading in a volume of around 653,000 shares. It charges 87 bps in annual fees.
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.
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Guide to the 10 Most Popular Leveraged ETFs
Leveraged ETFs have been gaining huge popularity with investors positioning themselves for amplified gains amid market volatility and uncertainty.
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 an investor purchases a leveraged ETF for $100 that provides two times (2×) exposure to an underlying index, which starts at a value of 10,000. On day 1, if the index rises by 1% to 10,100, the ETF increases by 2% to $102. On day 2, the index gains another 1%, reaching 10,201, and the ETF rises another 2%, ending at $104.04. Over the two days, the index has increased by approximately 2.01%, while the ETF has gained about 4.04%—roughly twice the index return, in line with the fund’s 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 traditional funds. They are often more costly and can be less tax-efficient, as they can generate capital gains through the use of swaps and other derivative instruments.
Here’s 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 more than 300 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 $24.5 billion and an average daily volume of 95 million shares a day. The fund seeks to deliver three times the return of the daily performance of the NASDAQ-100 Index, charging investors 0.84% in expense ratio.
Direxion Daily Semiconductor Bull 3x Shares (SOXL - Free Report) )
Leveraged Factor: 3x
Benchmark Index: NYSE Semiconductor Index
Direxion Daily Semiconductor Bull 3x Shares targets the semiconductor corner of the technology sector with three times leveraged exposure to the NYSE Semiconductor Index. It has amassed about $11.7 billion in its asset base while charging 89 bps in fees per year. Volume is good as it exchanges 193 million shares per day, on average (read: 5 Most Heavily Traded ETFs of the Past 3 Months).
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 an expense ratio of 0.95%. It has managed AUM of $7.7 billion and sees 4 million in average daily volume.
Direxion Daily TSLA Bull 2X Shares (TSLL - Free Report)
Leveraged Factor: 2x
Underlying Stock: Tesla (TSLA - Free Report)
With AUM of $6.5 billion, Direxion Daily TSLA Bull 2X Shares is by far the largest U.S.-listed single-stock ETF on the market. It offers two times the daily percentage change of the common stock of Tesla, charging 84 bps in annual fees. TSLL trades in a heavy volume of 211.5 million shares.
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 $5.7 billion in its asset base with a daily trading volume of around 2.5 million shares (read: What's Next for S&P 500 ETFs? History and Valuation Offer Clues).
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 a 3X long position in the S&P 500 Index with an expense ratio of 0.85%. It has AUM of $4.8 billion and trades in an average daily volume of nearly 5 million shares.
GraniteShares 2x Long NVDA Daily ETF (NVDL - Free Report) )
Leveraged Factor: 2x
Underlying Stock: NVIDIA NVDA
GraniteShares 2x Long NVDA Daily ETF magnifies exposure to a single trade, seeking two times the daily percentage change of the common stock of NVDA. It has an expense ratio of 1.15% and has amassed $4.2 billion in its asset base.
ProShares UltraPro S&P500 ETF (UPRO - Free Report)
Leveraged Factor: 3x
Benchmark Index: S&P 500 Index
ProShares UltraPro S&P500 ETF provides a triple-leveraged play to the S&P 500 Index, charging 91 bps in fees and expenses. It has been able to manage $3.9 billion in its asset base with a daily trading volume of around 5 million shares.
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 $3 billion in its asset base and charges 89 bps in fees per year. Volume is good as it exchanges around 2 million shares a day, on average.
Direxion Daily Financial Bull 3x Shares (FAS - Free Report)
Leveraged Factor: 3x
Benchmark Index: Financial Select Sector 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 Financial Select Sector Index. The fund has amassed $2.5 billion in its asset base while trading in a volume of around 653,000 shares. It charges 87 bps in annual fees.
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.