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While a booming economy and holiday spirit kept the positive momentum alive, higher interest rates in the United States, political malaise in Europe, trade woes, rounds of selling in tech stocks and threats of global slowdown have taken a toll on American stocks.
Meanwhile, emerging markets have shown some respite owing to attractive valuations, soft view from the Fed, hopes of a trade truce between the United States and China at the G-20 meeting and expectations of a weaker dollar (read: Emerging Markets on a Rebound? 5 ETFs Seeing Big Inflows).
On the commodity side, oil price collapsed this month and slipped into the bear territory (down at least 20% from its peak reached in early October), while gold regained some of its shine weakening dollar. Global growth concerns fled investors to safety. Natural gas has been on the rise on colder-than-expected temperatures that led to higher heating demand.
All these have created huge demand for leveraged or inverse leveraged ETFs this month as investors seek to magnify returns on quick market turn and register big gains in a short span. These products either create a leveraged long/short position, an inverse long/short position or a leveraged inverse long/short position in the underlying index through the use of swaps, options, future contracts and other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a very short period of time provided the trend remains a friend (see: all the Inverse Equity ETFs here).
However, these funds run the risk of huge losses compared to traditional funds in fluctuating or seesawing markets. Further, their performances could vary significantly from the actual performance of their underlying index over a longer period when compared to a shorter period (such as, weeks or months).
Still, we have highlighted five leveraged/inverse products that crushed the market in November with abnormal returns in a short period. Moreover, these funds will continue to be investors’ favorites if sentiments remain the same.
United States 3x Short Oil Fund – Up 85%
The ETF creates a three times (3x or 300%) short position in the movements of West Texas Intermediate (WTI) light, sweet crude oil. It has amassed about $2.6 million in its asset base and has expense ratio of 1.00%. Volume is solid as it exchanges around 19,000 shares a day on average.
VelocityShares 3x Long Natural Gas ETN – Up 53%
UGAZ seeks to deliver three times the daily return of the natural gas futures contracts, charging 1.65% in annual fees. It has amassed $719.6 million and trades in volume of 1.5 million shares a day on average (read: Oil in Bear Market: Leveraged ETFs to Gain From).
Direxion Daily MSCI India Bull 3X Shares (INDL - Free Report) – Up 85%
This ETF targets the Indian equity market and seeks to deliver thrice the daily performance of the MSCI India Index. The product has AUM of $101.4 million and charges 136 bps in fees and expenses. It trades in moderate volumes of about 61,000 shares per day.
Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 3X Shares (DRIP - Free Report) – Up 28.3%
This fund seeks three times inverse exposure of the performance of the S&P Oil & Gas Exploration & Production Select Industry Index. DRIP has accumulated $38.9 million in its asset base and trades in solid volume of around 5.1 million shares a day on average. The fund charges 95 bps in annual fees (read: 5 Inverse ETFs Up More Than 40% in October).
This ETF targets the emerging market with 3x leveraged exposure to the MSCI Emerging Markets Index. EDC has amassed about $216.7 million in its asset base while charges 95 bps in fees per year from investors. Volume is moderate as it exchanges around 256,000 shares a day on average.
Bottom Line
Investors should note that these products are suitable only for short-term traders as they are rebalanced on a daily basis. Further, liquidity can be the biggest problem for these products that could make them more expensive than they appear.
Still, ETF investors seeking to tap abrupt movements can go long or short in the near term.
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Best Leveraged/Inverse ETFs of November
While a booming economy and holiday spirit kept the positive momentum alive, higher interest rates in the United States, political malaise in Europe, trade woes, rounds of selling in tech stocks and threats of global slowdown have taken a toll on American stocks.
Meanwhile, emerging markets have shown some respite owing to attractive valuations, soft view from the Fed, hopes of a trade truce between the United States and China at the G-20 meeting and expectations of a weaker dollar (read: Emerging Markets on a Rebound? 5 ETFs Seeing Big Inflows).
On the commodity side, oil price collapsed this month and slipped into the bear territory (down at least 20% from its peak reached in early October), while gold regained some of its shine weakening dollar. Global growth concerns fled investors to safety. Natural gas has been on the rise on colder-than-expected temperatures that led to higher heating demand.
All these have created huge demand for leveraged or inverse leveraged ETFs this month as investors seek to magnify returns on quick market turn and register big gains in a short span. These products either create a leveraged long/short position, an inverse long/short position or a leveraged inverse long/short position in the underlying index through the use of swaps, options, future contracts and other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a very short period of time provided the trend remains a friend (see: all the Inverse Equity ETFs here).
However, these funds run the risk of huge losses compared to traditional funds in fluctuating or seesawing markets. Further, their performances could vary significantly from the actual performance of their underlying index over a longer period when compared to a shorter period (such as, weeks or months).
Still, we have highlighted five leveraged/inverse products that crushed the market in November with abnormal returns in a short period. Moreover, these funds will continue to be investors’ favorites if sentiments remain the same.
United States 3x Short Oil Fund – Up 85%
The ETF creates a three times (3x or 300%) short position in the movements of West Texas Intermediate (WTI) light, sweet crude oil. It has amassed about $2.6 million in its asset base and has expense ratio of 1.00%. Volume is solid as it exchanges around 19,000 shares a day on average.
VelocityShares 3x Long Natural Gas ETN – Up 53%
UGAZ seeks to deliver three times the daily return of the natural gas futures contracts, charging 1.65% in annual fees. It has amassed $719.6 million and trades in volume of 1.5 million shares a day on average (read: Oil in Bear Market: Leveraged ETFs to Gain From).
Direxion Daily MSCI India Bull 3X Shares (INDL - Free Report) – Up 85%
This ETF targets the Indian equity market and seeks to deliver thrice the daily performance of the MSCI India Index. The product has AUM of $101.4 million and charges 136 bps in fees and expenses. It trades in moderate volumes of about 61,000 shares per day.
Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 3X Shares (DRIP - Free Report) – Up 28.3%
This fund seeks three times inverse exposure of the performance of the S&P Oil & Gas Exploration & Production Select Industry Index. DRIP has accumulated $38.9 million in its asset base and trades in solid volume of around 5.1 million shares a day on average. The fund charges 95 bps in annual fees (read: 5 Inverse ETFs Up More Than 40% in October).
Direxion Daily MSCI Emerging Markets Bull 3X Shares (EDC - Free Report) – Up 8.5%
This ETF targets the emerging market with 3x leveraged exposure to the MSCI Emerging Markets Index. EDC has amassed about $216.7 million in its asset base while charges 95 bps in fees per year from investors. Volume is moderate as it exchanges around 256,000 shares a day on average.
Bottom Line
Investors should note that these products are suitable only for short-term traders as they are rebalanced on a daily basis. Further, liquidity can be the biggest problem for these products that could make them more expensive than they appear.
Still, ETF investors seeking to tap abrupt movements can go long or short in the near term.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>