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6 Best Performing Leveraged ETFs of September

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After an alarming start to September, Wall Street has extended its longest bull run in history with the S&P 500 and Dow Jones hitting new all-time highs last week. The optimism was buoyed by a booming economy and strong corporate earnings.

Additionally, the energy sector has provided a huge boost to the stock market lately on rising oil prices. The Fed has raised interest rates for the third time this year and signaled its gradual path for its future rates hikes. A rising rate scenario indicates a strengthening economy, which is spurring growth in the stock market (read: ETFs Set to Benefit/Lose From Higher Brent Prices).

However, ongoing troubles in the emerging markets, round of tech sell-off and escalating U.S.-China trade war fears have dampened investors’ mood in the month. In particular, President Donald Trump has imposed a new tariff of 10% on $200 billion worth of Chinese goods, effective Sep 24. The tariff will be increased to 25% effective Jan 1. In retaliation, China slapped a tariff of 10% on more than 5,000 American products worth $60 billion.

The roller-coaster ride has resulted in huge demand for leveraged or leveraged inverse ETFs as investors seek to register big gains in a short span. These products either create a multiple exposure (i.e. 2x or 3x) or inverse multiple exposure to the daily performance of the underlying index by employing various investment strategies such as swaps, futures contracts and other derivative instruments.

Below, we have highlighted six U.S.-focused ETFs that crushed the market in September with solid returns in a short period. Moreover, these funds will continue to be investors’ favorites if sentiments remain the same.

Direxion Daily Regional Banks Bear 3x Shares (WDRW - Free Report) – Up 15.1%

This fund seeks to deliver thrice the inverse return of the S&P Regional Banks Select Industry Index, charging 95 bps in fees per year. WDRW has accumulated $2.5 million in its asset base and trades in a paltry volume of around 1,000 shares a day on average. The fund is up 15.1% this month (read: Top-Ranked Bank ETFs & Stocks Set to Explode Higher).

Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN - Free Report) – Up 13.5%

The fund creates a three times leveraged long position in the Dow Jones U.S. Select Aerospace & Defense Index. It charges an annual fee of 95 bps and trades in good average daily volume of more than 73,000 shares. The fund has accumulated AUM of $69.5 million.

Direxion Daily S&P Biotech Bear 3x Shares (LABD - Free Report) – Up 11.8%

This product seeks to deliver three times the inverse daily performance of the S&P Biotechnology Select Industry Index. The fund has amassed $55.2 million in its asset base and average daily volume of 1.4 million shares. It charges investors 95 bps in annual fees and expenses.

Direxion Daily Industrials Bull 3X Shares (DUSL - Free Report) – Up 8.1%

This fund offers three times exposure to the daily performance of the Industrial Select Sector Index. It has accumulated $7.6 million in its asset base and the average daily volume is paltry at around 8,000 shares. Expense ratio comes in at 0.95%.

Direxion Daily Small Cap Bear 3x Shares (TZA - Free Report) – Up 7.4%

This product provides three times inverse exposure to the Russell 2000 Index, charging 95 bps in fees and expenses. It has been able to manage $307.6 million in its asset base with heavy average daily volume of 8.4 million shares (read: 5 Inverse Leveraged ETFs Off to a Strong Start in September).

Direxion Daily Healthcare Bull 3X Shares (CURE - Free Report) – Up 7.2%

This fund creates three times leveraged long position in the Health Care Select Sector Index, charging 95 bps in fees a year. It has $145.1 million in AUM and trades in volumes of 110,000 shares on average.

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 performance could vary significantly from the actual performance of the underlying index over a longer period when compared to the shorter period (such as, weeks or months) due to the compounding effect (see: all Leveraged Equity ETFs here).

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