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5 Leveraged/Inverse ETFs Surging in Double-Digits in March
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Bouts of volatility and uncertainty have raised the appeal of leveraged and inverse leveraged ETFs in March. Renewed global growth worries, inversion of the yield curve, Brexit issues and lingering uncertainty surrounding the U.S.-China trade deal have resulted in market gyrations. However, a still improving economy, higher consumer confidence, rebound in oil prices and recovering housing market are acting as catalysts for the stock market.
Against such a backdrop, investors are rushing to the products in this space to increase returns on quick market turns in a short time 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 (read: Leveraged ETFs: How Do They Work and What's Hot Now?).
However, these funds run the risk of 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 a shorter period (such as, weeks or months).
Still, we have highlighted five leveraged/inverse products that are seeing huge gains this month though these involve a great deal of risk when compared to traditional products. This trend might continue at least for the near term if sentiments remain the same.
Direxion Daily Regional Banks Bear 3x Shares – Up 43%
Bank stocks are on the cusp of a bear territory and may decline further on slowing economy and an inverted yield curve. This ETF seeks to deliver thrice the inverse return of the S&P Regional Banks Select Industry Index, charging 95 basis points (bps) in fees per year. WDRW has accumulated $1.9 million in its asset base and trades in a paltry volume of around 6,000 shares a day on average (read: Fear an Inverted Yield Curve? Short Financial Stocks With ETFs).
Direxion Daily MSCI India Bull 3X Shares (INDL - Free Report) – Up 17.5%
India’s stock market has been on a tear given the optimism over expectation of Prime Minister Modi winning another five-year term in the upcoming general elections. A dovish Fed and a soft dollar also added to the strength. INDL seeks to deliver thrice the daily performance of the MSCI India Index, charging investors 95 bps in annual fees. The product has AUM of $86.8 million and trades in a moderate volume of about 69,000 shares per day (read: Here's Why India ETFs Are Soaring).
ProShares UltraPro Short Financial Select Sector ETF – Up 17.5%
FINZ targets broad financial sector and provides three times inverse exposure to the S&P Financial Select Sector Index. It charges 95 bps per year while the average daily trading volume is paltry at 16,000 shares. It has accumulated $1.7 million in AUM.
Global growth concerns have raised the appeal of the gold as a store of value and a hedge against market turmoil. Additionally, the dovish Fed is providing support to the bullion. NUGT provides three times exposure to the daily performance of the NYSE Arca Gold Miners Index. It charges 91 bps in annual fees and has amassed $1.3 billion in its asset base. Volume is heavy, with more than 10 million shares exchanged per day on an average (read: Gold Mining ETFs are Hot Now: Will This Continue?).
Direxion Daily Small Cap Bear 3x Shares (TZA - Free Report) – Up 11%
After outperforming in the first two months of the year, small cap stocks have been hit hard by bouts of downbeat economic data in the United States. 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 $359.4 million in its asset base with heavy average daily volume of 14.1 million shares.
Bottom Line
Investors should note that these products are suitable only for short-term traders as these are rebalanced on a daily basis. Further, liquidity can be a big problem as it can make the products more expensive than what they appear (see: all the Inverse Equity ETFs here).
Still, ETF investors seeking to tap abrupt movements can go long or short in the near term.
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5 Leveraged/Inverse ETFs Surging in Double-Digits in March
Bouts of volatility and uncertainty have raised the appeal of leveraged and inverse leveraged ETFs in March. Renewed global growth worries, inversion of the yield curve, Brexit issues and lingering uncertainty surrounding the U.S.-China trade deal have resulted in market gyrations. However, a still improving economy, higher consumer confidence, rebound in oil prices and recovering housing market are acting as catalysts for the stock market.
Against such a backdrop, investors are rushing to the products in this space to increase returns on quick market turns in a short time 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 (read: Leveraged ETFs: How Do They Work and What's Hot Now?).
However, these funds run the risk of 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 a shorter period (such as, weeks or months).
Still, we have highlighted five leveraged/inverse products that are seeing huge gains this month though these involve a great deal of risk when compared to traditional products. This trend might continue at least for the near term if sentiments remain the same.
Direxion Daily Regional Banks Bear 3x Shares – Up 43%
Bank stocks are on the cusp of a bear territory and may decline further on slowing economy and an inverted yield curve. This ETF seeks to deliver thrice the inverse return of the S&P Regional Banks Select Industry Index, charging 95 basis points (bps) in fees per year. WDRW has accumulated $1.9 million in its asset base and trades in a paltry volume of around 6,000 shares a day on average (read: Fear an Inverted Yield Curve? Short Financial Stocks With ETFs).
Direxion Daily MSCI India Bull 3X Shares (INDL - Free Report) – Up 17.5%
India’s stock market has been on a tear given the optimism over expectation of Prime Minister Modi winning another five-year term in the upcoming general elections. A dovish Fed and a soft dollar also added to the strength. INDL seeks to deliver thrice the daily performance of the MSCI India Index, charging investors 95 bps in annual fees. The product has AUM of $86.8 million and trades in a moderate volume of about 69,000 shares per day (read: Here's Why India ETFs Are Soaring).
ProShares UltraPro Short Financial Select Sector ETF – Up 17.5%
FINZ targets broad financial sector and provides three times inverse exposure to the S&P Financial Select Sector Index. It charges 95 bps per year while the average daily trading volume is paltry at 16,000 shares. It has accumulated $1.7 million in AUM.
Direxion Daily Gold Miners Bull 3X Shares (NUGT - Free Report) – Up 11.9%
Global growth concerns have raised the appeal of the gold as a store of value and a hedge against market turmoil. Additionally, the dovish Fed is providing support to the bullion. NUGT provides three times exposure to the daily performance of the NYSE Arca Gold Miners Index. It charges 91 bps in annual fees and has amassed $1.3 billion in its asset base. Volume is heavy, with more than 10 million shares exchanged per day on an average (read: Gold Mining ETFs are Hot Now: Will This Continue?).
Direxion Daily Small Cap Bear 3x Shares (TZA - Free Report) – Up 11%
After outperforming in the first two months of the year, small cap stocks have been hit hard by bouts of downbeat economic data in the United States. 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 $359.4 million in its asset base with heavy average daily volume of 14.1 million shares.
Bottom Line
Investors should note that these products are suitable only for short-term traders as these are rebalanced on a daily basis. Further, liquidity can be a big problem as it can make the products more expensive than what they appear (see: all the Inverse Equity ETFs here).
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 >>