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5 Best Leveraged ETFs of Q2

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The second-quarter of 2018 was all about the Fed’s rate hike and its hawkish guidance, escalating trade war fears and OPEC’s output boost by a smaller-than-expected margin. Thanks to a hawkish Fed and the resultant rise in the greenback, there was an acute selloff in the emerging markets. All these events basically pulled the strings globally in Q2.

The S&P 500-based ETF SPY has gained about 5.4%, the Dow Jones-based ETF (DIA - Free Report)  has advanced only 2.8% while the Nasdaq 100-based (QQQ - Free Report)  has rallied around 10.4%. Needless to say, such stellar gains have had a significant impact on the leveraged ETFs.

These ETFs provide multiple-times exposure to 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 shorter period due to their compounding effect. Still, the space remains attractive for investors seeking high returns in a short time.

Below we highlight the five top-performing leveraged ETFs of Q2.

Direxion Daily Retail Bull 3X ETF (RETL - Free Report)  – Up 39.15%

A raft of upbeat economic data and a solid U.S. market reignited optimism in the consumer discretionary space. Apart from economic growth, there have been some developments in the retail space that are driving stocks.

Omni-channel retailing, which is a combination of e-commerce and physical retail, has been coming to the forefront lately. Several traditional retailers are expanding in the online space, putting an end to widespread talks of brick-and-mortar retailing reaching a dead end. 

Plus, a pickup in the economy is great for a cyclical sector like consumer discretionary or retail. Such sectors perform better in a rising-rate environment that we are witnessing currently in the United States. If this was not enough, the retail sector came up with strong growth rates in Q1  (read: Here's Why the Rally in Retail ETFs Will Continue in 2H).

ProShares Ultra Oil & Gas (DIG - Free Report)  – Up 33.24%

There has been an oil price rally as evident from an 18.2% three-month rise in United States Oil (USO - Free Report) . And then, OPEC members cut a deal to boost output by a lower-than-expected margin (read: Winning and Losing Sectors ETFs Post OPEC Decision).

“People probably feared 1.5 million barrels a day.” But Saudi Arabia said the renewed deal will result in a nominal output rise of around 1 million barrels per day (bpd). This came as a pleasant surprise for the space, sending oil higher and benefiting ETFs.

UBS ETRACS 2x Monthly Leveraged S&P MLP ETN  – Up 33.24%

An oil price recovery is a positive for the MLP space. Plus, we noticed rising rates in the United States in the second quarter. Amid this scenario, many were possibly interested in tapping ETFs that offered benchmark-beating yields. Notably, MLPZ, which is an exchange-traded note linked to the monthly compounded 2x leveraged performance of S&P MLP Index, less investor fees, yields 12.33% annually (read: What Does the OPEC Agreement Mean for Energy ETFs?).  

Direxion Daily MSCI Real Estate Bull 3X ETF (DRN - Free Report) ) – Up 29.64%

Real Estates are known for high yield and perform well with economic growth. So, as the Fed turned hawkish in Q2 encouraged by a solid U.S. growth momentum (especially when compared with other developed economies) and bond yields jumped, some real estate ETFs rallied. The fund DRN offers 300% of the performance of the MSCI US REIT Index.

UBS ETRACS M Pay 2xLvg US Small Cap High Dividend ETN  – Up 25.85%

Small-caps have been on a tear in Q2 clearly outperforming its larger counterparts. President Trump’s protectionist agenda and the resultant trade war fears started weighing on large-cap stocks that have considerable international exposure. And the domestically focused pint-sized stocks soared (read: 5 Top-ranked Small-cap ETFs on Sale).

In additions to trade tensions, there were some other factors that played their roles in pushing pint-sized stocks higher. The U.S. economy has been on steady ground. This gave a boost to small-cap equities. Apart from this, upbeat earnings sent small caps rallying in recent times.

And what could be better than a high dividend feature attached to this segment? The fund yields about 17.45% annually.

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