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Amid bouts of volatility, global stocks hit all-time highs on hopes of reflation trade and a slew of robust global data on export, employment and inflation. This has raised expectation of faster growth from the U.S. to Europe (read: If Trump Flares Up Uncertainty, Profit from These ETFs).
In fact, most of the gains came from the resurgence of Trump rally especially following talks of a 'phenomenal' tax cut and infrastructure spending that sent the three major U.S. benchmarks to the longest streak of record closing highs since 1992 in the last five consecutive trading sessions. The continuation of friendly U.S.-Japan trade ties, thanks to an amicable Trump-Abe’s meeting last week, has also eased the nervousness related to the currency policy.
Additionally, the Fed has stirred up the rally signaling a rate hike as early as March, pushing the greenback higher. Adding to the strength is robust Q4 earnings, growth in which is on track to reach the highest level in two years. Also, total Q4 earnings are heading toward a new quarterly record. Further, signs of improvement in Japanese, Chinese, and European economies infused fresh optimism in the markets.
This has resulted in huge demand for leveraged ETFs 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. Due to their compounding effect, investors can enjoy higher returns in a very short period of time, provided the trend remains a friend (read: Leveraged ETFs: How Are They Built and What's Hot Now?)
Below, we have highlighted seven ETFs that crushed the market with abnormal returns piled up in a short period. These funds will also continue to be investors’ darlings provided the sentiments remain the same.
Direxion Daily Junior Gold Miners Index Bull 3x Shares (JNUG - Free Report) – Up 109.1%
Fears of political uncertainty, series of elections and referendum in Europe and worries over US President Donald Trump’s protectionist policies continued to support the safe-haven appeal for the metal, thereby giving boost to the gold mining stocks. JNUG product provides three times (3x) exposure to the daily performance of the MVIS Global Junior Gold Miners Index. It charges 95 bps in fees and expense and has accumulated nearly $644.7 million in its asset base. Volume is heavy, exchanging 33.6 million in shares per day on average.
Direxion Daily Brazil Bull 3x Shares (BRZU - Free Report) – Up 69.24%
Brazilian stocks continued their stellar run this year buoyed by rate cuts and hopes of new reforms that can shore up the country’s recession-stricken economy after the subsequent impeachment of President Dilma Rousseff. The ETF creates a three-times leveraged long position in the MSCI Brazil 25/50 Index. It has amassed about $71.5 million in its asset base while charges 95 bps in fees per year from investors. Volume is solid as it exchanges around 330,000 shares a day on average.
After a huge sell-off on Trump’s statement that the drugmakers are “getting away with murder” in late January, biotech stocks got a boost from upbeat earnings, and his latest announcements regarding drug prices and regulation. Trump promised to reduce regulations and streamline the approval process. The 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 huge average daily volume of more than 3 million shares. The fund has accumulated AUM of $299 million (read: What Lies Ahead for Biotech ETFs in Trump Era?).
Direxion Daily Silver Miners Index Bull 2x Shares (SHNY - Free Report) – Up 44.95%
The Trump administration, positive developments in China, a pickup in global manufacturing and industrial activities, and improving global trends gave the appeal for silver and the related leveraged ETFs a boost. SHNY provides two times (2x) exposure to the daily performance of the Solactive Global Silver Miners Index. It has been able to manage $1.6 million in its asset base and trades in a paltry volume of around 11,000 shares per day on average. Expense ratio is 0.80%.
Direxion Daily FTSE China Bull 3x Shares (YINN - Free Report) – Up 38.58%
After a dismal 2016, Chinese stocks made a strong comeback on encouraging earnings and a raft of solid economic data. YINN targets the Chinese stock market and offers three times the daily performance of the FTSE China 50 Index. It has accumulated $122.8 million in its asset base and charges 95 bps in annual fees. Volume is impressive exchanging more than 1.1 million shares a day (read: 2017 Brings Luck for China ETFs: Will the Rally Last?).
This ETF targets the emerging market with three-times leveraged exposure to the MSCI Emerging Markets Index. Emerging markets have been on a tear since the start of 2017 buoyed by subdued global bond yields, inflation, improving growth and easing currency war fears. EDC has amassed about $154.8 million in its asset base while charges 95 bps in fees per year from investors. Volume is solid as it exchanges around 616,000 shares a day on average.
Direxion Daily Cyber Security & IT Bull 2x Shares – Up 32.62%
As the demand for cloud and Internet of Things (IoT) protection is growing by leaps and bounds, cyber security stocks are pushing higher. HAKK seeks to deliver two times the daily performance of the ISE Cyber Security Index. The fund has amassed $1.9 million in its asset base and trades in a meager average volume of under 1,000 shares. It charges investors 80 bps in annual fees and expenses.
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, any 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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7 Best Leveraged ETFs So Far in 2017
Amid bouts of volatility, global stocks hit all-time highs on hopes of reflation trade and a slew of robust global data on export, employment and inflation. This has raised expectation of faster growth from the U.S. to Europe (read: If Trump Flares Up Uncertainty, Profit from These ETFs).
In fact, most of the gains came from the resurgence of Trump rally especially following talks of a 'phenomenal' tax cut and infrastructure spending that sent the three major U.S. benchmarks to the longest streak of record closing highs since 1992 in the last five consecutive trading sessions. The continuation of friendly U.S.-Japan trade ties, thanks to an amicable Trump-Abe’s meeting last week, has also eased the nervousness related to the currency policy.
Additionally, the Fed has stirred up the rally signaling a rate hike as early as March, pushing the greenback higher. Adding to the strength is robust Q4 earnings, growth in which is on track to reach the highest level in two years. Also, total Q4 earnings are heading toward a new quarterly record. Further, signs of improvement in Japanese, Chinese, and European economies infused fresh optimism in the markets.
This has resulted in huge demand for leveraged ETFs 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. Due to their compounding effect, investors can enjoy higher returns in a very short period of time, provided the trend remains a friend (read: Leveraged ETFs: How Are They Built and What's Hot Now?)
Below, we have highlighted seven ETFs that crushed the market with abnormal returns piled up in a short period. These funds will also continue to be investors’ darlings provided the sentiments remain the same.
Direxion Daily Junior Gold Miners Index Bull 3x Shares (JNUG - Free Report) – Up 109.1%
Fears of political uncertainty, series of elections and referendum in Europe and worries over US President Donald Trump’s protectionist policies continued to support the safe-haven appeal for the metal, thereby giving boost to the gold mining stocks. JNUG product provides three times (3x) exposure to the daily performance of the MVIS Global Junior Gold Miners Index. It charges 95 bps in fees and expense and has accumulated nearly $644.7 million in its asset base. Volume is heavy, exchanging 33.6 million in shares per day on average.
Direxion Daily Brazil Bull 3x Shares (BRZU - Free Report) – Up 69.24%
Brazilian stocks continued their stellar run this year buoyed by rate cuts and hopes of new reforms that can shore up the country’s recession-stricken economy after the subsequent impeachment of President Dilma Rousseff. The ETF creates a three-times leveraged long position in the MSCI Brazil 25/50 Index. It has amassed about $71.5 million in its asset base while charges 95 bps in fees per year from investors. Volume is solid as it exchanges around 330,000 shares a day on average.
Direxion Daily S&P Biotech Bull 3x Shares (LABU - Free Report) – Up 54.39%
After a huge sell-off on Trump’s statement that the drugmakers are “getting away with murder” in late January, biotech stocks got a boost from upbeat earnings, and his latest announcements regarding drug prices and regulation. Trump promised to reduce regulations and streamline the approval process. The 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 huge average daily volume of more than 3 million shares. The fund has accumulated AUM of $299 million (read: What Lies Ahead for Biotech ETFs in Trump Era?).
Direxion Daily Silver Miners Index Bull 2x Shares (SHNY - Free Report) – Up 44.95%
The Trump administration, positive developments in China, a pickup in global manufacturing and industrial activities, and improving global trends gave the appeal for silver and the related leveraged ETFs a boost. SHNY provides two times (2x) exposure to the daily performance of the Solactive Global Silver Miners Index. It has been able to manage $1.6 million in its asset base and trades in a paltry volume of around 11,000 shares per day on average. Expense ratio is 0.80%.
Direxion Daily FTSE China Bull 3x Shares (YINN - Free Report) – Up 38.58%
After a dismal 2016, Chinese stocks made a strong comeback on encouraging earnings and a raft of solid economic data. YINN targets the Chinese stock market and offers three times the daily performance of the FTSE China 50 Index. It has accumulated $122.8 million in its asset base and charges 95 bps in annual fees. Volume is impressive exchanging more than 1.1 million shares a day (read: 2017 Brings Luck for China ETFs: Will the Rally Last?).
Direxion Daily Emerging Markets Bull 3x Shares (EDC - Free Report) – Up 33.88%
This ETF targets the emerging market with three-times leveraged exposure to the MSCI Emerging Markets Index. Emerging markets have been on a tear since the start of 2017 buoyed by subdued global bond yields, inflation, improving growth and easing currency war fears. EDC has amassed about $154.8 million in its asset base while charges 95 bps in fees per year from investors. Volume is solid as it exchanges around 616,000 shares a day on average.
Direxion Daily Cyber Security & IT Bull 2x Shares – Up 32.62%
As the demand for cloud and Internet of Things (IoT) protection is growing by leaps and bounds, cyber security stocks are pushing higher. HAKK seeks to deliver two times the daily performance of the ISE Cyber Security Index. The fund has amassed $1.9 million in its asset base and trades in a meager average volume of under 1,000 shares. It charges investors 80 bps in annual fees and expenses.
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, any 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.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>