After a bumpy ride in 2018 and a lackluster start to 2019, Wall Street staged a nice comeback following robust December job data and Powell’s comment that the Fed is not in a hurry to raise rates this year. Notably, the American economy added higher-than-expected 312,000 jobs in December — the biggest gain in 10 months — while unemployment jumped to 3.9%, the highest rate since August.
Signs of progress in U.S.-China trade talks as well as hopes of more stimulus for China's economy also boosted demand for riskier assets. Additionally, the Fed minutes, which indicated caution on future interest rate hikes, helped to boost sentiment. Oil price also rebounded strongly after a wild fourth quarter on falling production and OPEC-led fresh crude output cuts (read: Oil Heads for Biggest 2-Year Weekly Gain: 5 Top ETFs, Stocks). The optimism came amid the longest government shutdown in history, geopolitical tension and slower global growth concerns. The bullishness has spread across all over the world with global stocks in the green from the year-to-date look. VIDEO
All these fundamentals have resulted in huge demand for leveraged ETFs as investors seek 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.
Below we have highlighted nine ETFs that have piled up exceptional returns to start 2019. These funds will continue to be investors’ darlings provided the sentiments remain the same (see: all Leveraged Equity ETFs here). Direxion Daily Natural Gas Related Bull 3x Shares ( GASL - Free Report) – Up 60.4% This product seeks to deliver three times the daily performance of the ISE Revere Natural Gas Index, which derives a substantial portion of its revenues from the exploration and production of natural gas. The fund has amassed $37.7 million in AUM and trades in a good average daily volume of 286,000 shares. Expense ratio comes in at 0.95%. Direxion Daily S&P Oil & Gas Exploration & Production Bull 3x Shares ( GUSH - Free Report) – Up 54% This fund offers three times exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It has accumulated $268.1 million in its asset base and the average daily volume is solid at around 2.6 million shares. Expense ratio comes in at 0.95% (read: Tap Oil with These Leveraged Energy ETFs). Direxion Daily S&P Biotech Bull 3x Shares ( LABU - Free Report) – Up 43.5% This fund creates a 3x leveraged long position in the S&P Biotechnology Select Industry Index. It charges an annual fee of 95 bps and trades in a heavy average daily volume of about 2.8 million shares. The fund has AUM of $609 million. Direxion Daily Brazil Bull 3x Shares ( BRZU - Free Report) – Up 37.4% The ETF creates a three times long position in the MSCI Brazil 25/50 Index. It has amassed about $387.7 million in its asset base while charging 95 bps in fees per year from investors. Volume is solid as it exchanges around 2.8 million shares a day on average. Direxion Daily Regional Banks Bull 3x Shares ( DPST - Free Report) – Up 35.9% This fund seeks to deliver three times the returns of the S&P Regional Banks Select Industry Index, charging 95 bps in fees per year. It has accumulated $29.5 million in its asset base and trades in average daily volume of around 36,000 shares a day on average (read: Are Bank ETFs Good Buys Before Earnings Release?). Direxion Daily Latin America 3x Bull Shares ( LBJ - Free Report) – Up 34.5% This product tracks the S&P Latin America 40 Index, providing three times exposure. It has gathered $13.5 million in its asset base while charging 95 bps in annual fees. Volume is lower, trading at nearly 28,000 shares. BMO REX MicroSectors FANG+ Index 3X Leveraged ETN ( FNGU - Free Report) – Up 33.4% This note seeks to offer three times leveraged 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 has accumulated $108.1 million in its asset base. It charges 95 bps in annual fees and trades in average daily volume of 166,000 shares. Direxion Daily MSCI Mexico Bull 3X Shares ( MEXX - Free Report) - Up 30.5% This ETF creates a three times long position in the MSCI Mexico IMI 25/50 Index, charging 95 bps in annual fees. It has AUM of $14.6 million and trades in average daily volume of 32,000 shares. Direxion Daily Homebuilders & Supplies Bull 3X Shares ( NAIL - Free Report) - Up 27% NAIL provides leveraged exposure to homebuilders and creates a three times long position in the Dow Jones U.S. Select Home Construction Index. It charges an annual fee of 95 bps and trades in lower average daily volume of about 54,000 shares. The fund has accumulated $33 million in its asset base (read: Will the Rally in Homebuilder ETFs Continue?). 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 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. Still, for ETF investors who are bullish on equities for the near term, any of the above products could make an interesting choice. Clearly, a near-term long could be intriguing for those with high-risk tolerance, and a belief that the “trend is the friend” in this corner of the investing world. 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 >>