With 2017 drawing to a close, it is time to look back at what worked best in the investment world. Leveraged ETFs sure deserve a mention here as the winning ones shower immense gains on investors.
These ETFs provide exposure that is a multiple of the performance of the underlying index. These funds employ various investment strategies such as the 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 short period due to their compounding effect. Still, the space remains a hot area for investors looking for high payoffs in a short time.
On a year-to-date basis (as of December 24, 2018), the S&P 500-based ETF (SPY - Free Report) retreated about 12.8%, Dow Jones-based ETF (DIA - Free Report) lost 12.1%, while Nasdaq 100-based (QQQ - Free Report) shed around 9.5% (read: 5 Long/Short ETFs Handily Beating S&P 500 in 2018).
The Fed’s policy tightening, renewed global growth worries, an oil price slump, widespread tech selloffs, heightened trade tensions between the United States and China, fears of peaking U.S. economic growth, and finally the government shutdown were the botherations.
Needless to say, while the border market had displayed such downbeat performances, inverse leveraged ETFs have logged significant gains. Against this backdrop, investors must be interested in knowing about the top-leveraged inverse ETF performers of 2018.
Oil & Energy
Oil and energy have been one of the most battered spaces in 2018. Slower global growth, rising supplies and worries of pipeline constraints played foul for the sector. Though the OPEC decided on a fresh output cut deal for the first six months of 2019, it failed to offer a major boost to this ailing commodity. As a result, the following inverse leveraged ETFs gained considerably (read: Is Fresh OPEC+ Output Cut Enough to Boost Oil & Energy ETFs?).
Direxion Daily Natural Gas Related Bear 3x Shares (GASX - Free Report) ) – Up 193.85%
Direxion Daily S&P Oil & Gas Exploration & Production Bear 3x Shares (DRIP - Free Report) – Up 115.6%
Direxion Daily Energy Bear 3X Shares (ERY - Free Report) – Up 80.62%
Thanks to the probability of faster-than-expected Fed rate hikes, the short end of the yield curve is slightly rising faster than the long end, narrowing the spread between both the yields and indicating a flattening yield curve.
Since banks borrow money at short-term rates and lend capital at long-term rates, steepening of the yield curve bodes well for bank ETFs. And if the yield curve flattens, the net interest rate margins of banks decline. This clearly explains the outperfromnace of the inverse leveraged financial ETFs (read: Why Financial ETFs Are Down Despite Decent Bank Earnings).
Direxion Daily Regional Banks Bear 3X Shares (WDRW - Free Report) – Up 84.85%
ProShares UltraPro Short Financials (FINZ - Free Report) – Up 59.52%
A substantial slowdown has been noticed in the Euro zone and Japan this year despite a massive stimulus policy. The Nikkei 225 Stock Average slid into a bear market at the end of the year. Probably this is why developed markets also did not do well and benefited this below-mentioned ETF.
Direxion Daily Developed Markets Bear 3X Shares (DPK - Free Report) – Up 63.71%
In the U.S. market rout, mid caps were one of the worst losers.
ProShares UltraPro Short MidCap400 (SMDD - Free Report) – Up 61.32%
Direxion Daily Mid Cap Bear 3X Shares (MIDZ) – Up 57.60%
Small-cap stocks have also been battered by rising rate and recessionary fears in the U.S. economy. This benefited the below-mentioned ETFs (read: 7 Inverse ETFs That Soared More Than 70% in Q4).
Direxion Daily Small Cap Bear 3X Shares (TZA - Free Report) – Up 52.48%
ProShares UltraPro Short Russell2000 (SRTY - Free Report) – Up 50.38%
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 >>