The month of July was strong for the U.S. stock market with the S&P 500 re-claiming its 2800 level despite escalating trade worries. The rally was fueled by strong corporate earnings, accelerating economic growth, and the perception that American stocks are largely insulated from potential trade wars.
With just one trading session left, the S&P is up 3.1% for the month, representing its largest increase since January, while the Dow Jones and Nasdaq Composite Index has gained 4.3% and 1.6%, respectively. Notably, Nasdaq has been in the spotlight throughout the month, scaling new highs on several occasions and then fell sharply in the last three sessions due to the tech sell-off triggered by weaker-than-expected earnings (read: Facebook Slump Drags Down Tech ETFs: Any Winners?).
This frequent change in sentiments raised the appeal of leveraged ETFs as investors sought 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.
In fact, many products provided outsized gains this month, despite a great deal of risk involved when compared with traditional products. While the 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.
Below we have highlighted five ETFs that generated double-digit returns and will continue to do so at least for the near term if the sentiments are intact (see: all Leveraged Equity ETFs here).
Direxion Daily Healthcare Bull 3X Shares (CURE - Free Report) – Up 15.4%
This fund creates three times (3x) leveraged long position in the Health Care Select Sector Index while charging 95 bps in fees a year. It has $145.1 million in AUM and trades in volumes of 178,000 shares on average.
ProShares UltraPro Financial Select Sector (FINU - Free Report) – Up 15.4%
This product provides three times exposure to the daily performance of the S&P Financial Select Sector Index. It has been able to manage $54.8 million in its asset base and trades in a lower volume of about 32,000 shares per day on average. Expense ratio is 0.95%.
Direxion Daily Industrials Bull 3X Shares (DUSL - Free Report) – Up 14.3%
This fund offers three times exposure to the daily performance of the Industrial Select Sector Index. It has accumulated $6.9 million in its asset base and the average daily volume is paltry at around 11,000 shares. Expense ratio comes in at 0.95% (read: ETFs & Stocks Set to Surge on Robust Industrial Production).
Direxion Daily Transportation Bull 3X Shares (TPOR - Free Report) - Up 13.3%
This ETF targets the transportation sector and seeks to deliver thrice the daily performance of the Dow Jones Transportation Average. The product has AUM of $10.5 million and charges 95 bps in fees and expenses. It trades in lower volumes of about 12,000 shares per day.
ProShares UltraPro Dow30 (UDOW - Free Report) – Up 12.5%
This product offers three times exposure to the Dow Jones Industrial Average. It has amassed $535.2 million in its asset base and trades in a solid average daily volume of about 1.4 million shares. Expense ratio comes in at 0.95%.
A Wild Card
BMO REX MicroSectors FANG+ Index -3X Inverse Leveraged ETN (FNGD - Free Report)
This note seeks to offer three times inverse 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 $23.96 million since then. It charges 95 bps in annual fees and trades in average daily volume of 36,000 shares. FNGD has gained 17.1% this month (read: A Spread of ETFs to Tap the Dip in FANGs).
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