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The U.S. stock markets have been on an exceptionally stellar run, downplaying the uncertainty stemming from the Washington turmoil and geopolitical risks. In fact, the three major bourses witnessed their best month since February with the S&P 500 and Dow Jones rising for four consecutive months.

Strong corporate earnings were the main drivers of the stock rally in July. Earnings for the S&P 500 index that have reported so far are up 11.3% from the same period last year on 6.1% higher revenues, with 74.5% beating EPS estimates and 69.2% beating revenue estimates. The proportion of companies beating estimates, particularly revenues, is notably tracking above the recent periods. Additionally, total earnings for the quarter are on track to reach a new all-time quarterly record though earnings growth has slowed from the prior-quarter.

Further, growing global economic activity, weak dollar and stabilizing oil prices continued to add to the overall strength, particularly in large cap stocks (read: Why You Should Bet on Blue Chip ETFs Now).

This has resulted in huge demand for leveraged ETFs as investors seek solid returns 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.

Below, we have highlighted five ETFs that crushed the market in July and piled up exceptional returns. Moreover, these funds will continue to be investors’ darlings this quarter if the trends remain the same.

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

This ETF targets the semiconductor corner of the technology sector with 3x leveraged exposure to the PHLX Semiconductor Sector Index. It has amassed about $361.7 million in its asset base while charges 95 bps in fees per year. Volume is good as it exchanges nearly 422,000 shares a day on average. The fund was up 19.4% in July (read: Semiconductor ETFs to Roar Higher As Q2 Earnings Unfold).

Daily Gold Miners Bull 3x shares (NUGT - Free Report)

This product seeks to deliver thrice the daily performance of the NYSE Arca Gold Miners Index, which consists of firms that operate globally in both developed and emerging markets, and are involved primarily in the exploration and production of gold. It is rich in AUM of $1.4 billion and trades in a heavy average volume of around 11 million shares. It charges investors 90 bps in annual fees and surged 16.8% last month.

iPath Long Extended Russell 1000 TR Index ETN (ROLA - Free Report)

The note offers 3x leveraged exposure to the Russell 1000 Total Return Index, which measure the performance of the large-cap segment of the U.S. equity market. It charges an annual fee of 50 bps and trades in a meager average daily volume of under 100 shares. The ETN has accumulated AUM of $1.4 million and gained about 16% in July.

Direxion Daily Technology Bull 3x Shares (TECL - Free Report)

This ETF targets the technology sector with 3x leveraged exposure to the Technology Select Sector Index. It has amassed about $322 million in its asset base while charges 95 bps in fees per year from investors. Volume is good as it exchanges around 143,000 shares a day on average. The fund gained 16% in July (read: Tech ETFs on Fire as Q2 Earnings Season Heats Up).

ProShares UltraPro QQQ (TQQQ - Free Report)

This ETF provides 3x the return of the daily performance of the NASDAQ-100 Index. It is one of the popular and liquid options to the leveraged large cap space with AUM of $1.9 billion and average daily volume of 3.1 million shares. TQQQ charges 95 bps in fees per year from investors and was up 15.7% last 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 the Leveraged Equity ETFs here).

Still, for ETF investors who are bullish on U.S. 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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