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5 Best Leveraged ETFs to Start June

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The momentum that Wall Street enjoyed last month continues into June. This is especially true as Dow Jones recorded its biggest weekly gain since March to start the month, while S&P 500 and Nasdaq logged their third straight weekly gain. The Dow jumped 2.8% last week while the S&P 500 and the Nasdaq added 1.6% and 1.2%, respectively.

The impressive gains came on the back of a raft of upbeat data, which indicates a strong economy after a slowdown in the first quarter, keeping aside tariff threats and trade fears. In particular, hiring in the United States rebounded with the addition of higher-than-expected 223,000 jobs in May. Unemployment dropped from 3.9% to 3.8%, the lowest since 2000 while average hourly wages rose 8 cents, pushing the year-over-year increase to 2.7% (read: 4 Sector ETFs to Profit From Strong May Jobs Data).

Manufacturing activity expanded at a faster pace than expected last month while construction spending rose 1.8% in April -- the largest increase since January 2016. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, surged the most in five months by 0.6% in April, while consumer confidence rebounded near the 18-year high in May.

All these data have spurred strong optimism about the economy and 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.

Below we have highlighted five ETFs that have gained most and are easily crushing the market to start June. Moreover, these funds will continue to be investors’ darlings this month if rounds of positive data continued to perk up the market (see: all Leveraged Equity ETFs here).

Direxion Daily Retail Bull 3X Shares (RETL - Free Report)

This ETF targets the retail corner of the U.S. consumer sector and is riding high on improving economic activities that are leading to increased consumer spending. It offers three times (3x) leveraged exposure to the S&P Retail Select Industry Index. The product has amassed about $26.7 million in its asset base, while charges 95 bps in fees per year. Volume is lower as it exchanges around 32,000 shares a day on average. The fund surged nearly 20% last week (read: Here's Why the Rally in Retail ETFs Will Continue in 2H).

Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL - Free Report)

Homebuilders are gaining as mortgage rates, which peaked up last month, dropped for the second consecutive week. This marks the second time this year that rates have fallen in back-to-back weeks. NAIL provides leveraged exposure to homebuilders and creates a three times long position in the Dow Jones U.S. Select Home Construction Index. It charges an annual fee of 95 bps and trades in a light average daily volume of about 73,000 shares. The fund has accumulated AUM of $59.9 million and gained 14.1% last week.

Direxion Daily Pharmaceutical & Medical Bull 3X Shares (PILL - Free Report)

The new tax legislation and lower drug price plan is providing a lift to pharma stocks. This product targets the pharma corner of the broad healthcare sector and seeks to deliver thrice the daily performance of the Dynamic Pharmaceutical Intellidex Index. It has managed $4.5 million in AUM and trades in a light average daily volume of 8,000 shares. Expense ratio comes in at 0.95%. PILL was up 12.8% last week (read: 7 Top Performing Leveraged ETFs of May).

BMO REX MicroSectors FANG+ Index 3X Leveraged ETN (FNGU - Free Report)

Investors continued to pour money into fast-growing companies, especially the big techs, following the upbeat data. This note seeks to offer three times leveraged exposure to the NYSE FANG Index, which is an equal-dollar weighted index targeting the highly-traded growth stocks of next generation technology and tech-enabled companies in the technology and consumer discretionary sectors. The ETN debuted in late January and has accumulated $88 million since then. It charges 95 bps in annual fees and trades in average daily volume of 97,000 shares. The product gained 8.9% last week.

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

Regional banks are enjoying uptrend given the the biggest roll-back of Dodd-Frank reforms and an improving economy, which will lead to a pickup in loan growth. This fund seeks to deliver three times the returns of the S&P Regional Banks Select Industry Index, charging 95 bps in fees per year. DPST has accumulated $56.5 million in its asset base and trades in a paltry volume of around 30,000 shares a day on average. The fund added 8.7% last week (read: Regional Bank ETFs: What Investors Need to Know).

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 seesawing markets. Further, their performance 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.

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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