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5 Leveraged/Inverse ETFs That Are Up 20% Plus So Far in Q2

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The second quarter has so far been marked by volatility and uncertainty. This is because an improving economy, as depicted by rounds of upbeat data as well as better-than-expected earnings, continued to drive markets to the peaks. At the same time, escalation in U.S.-China trade spat continue to kept investors cautious, especially after Trump raises tariffs and banned Chinese firm Huawei Technologies to do business with American companies. However, he has granted 90-day exemptions to purchase U.S.-made goods (read: 5 Tech ETFs Losing the Most on Huawei Ban: What's Ahead?).

This has resulted in a strong demand for leveraged and inverse-leveraged ETFs as these could fetch outsized returns on quick market turns 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.

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 have gained more than 20% so far this quarter though these involve a great deal of risk when compared with traditional products. This trend might continue at least for the near term if sentiments remain the same (read: Leveraged ETFs: How Do They Work and What's Hot Now?).

Direxion Daily Junior Gold Miners Index Bear 3X Shares (JDST - Free Report) – Up 31.5%

This ETF offers three times (300% or 3x) exposure to the daily performance of the MVIS Global Junior Gold Miners Index. It has been able to manage assets worth $38.1 million and sees average daily volume of 826,000 shares. The fund charges 0.95% in expense ratio.

Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL - Free Report) - Up 25.8%

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 61,000 shares. The fund has accumulated $44.6 million in its asset base.

Direxion Daily FTSE China Bear 3x Shares (YANG - Free Report) – Up 24.8%

This fund provides three times the inverse return of the FTSE China 50 Index. It has AUM of around $95 million and sees good trading volume of 358,000 shares a day on average. Expense ratio comes in at 0.95% (read: Are Southeast Asia ETFs Better Bets Than China?).

Direxion Daily Gold Miners Index Bear 3x Shares (DUST - Free Report) – Up 23.9%

DUST seeks to deliver three times the inverse daily performance of the NYSE Arca Gold Miners Index. The fund has amassed $100.1 million in its asset base and trades in heavy average volume of around 4.4 million shares. It charges investors 91 bps in annual fees and expenses.

Direxion Daily S&P Biotech Bear 3x Shares (LABD - Free Report) – Up 20.2%

This product seeks to deliver three times the inverse daily performance of the S&P Biotechnology Select Industry Index. The fund has amassed $101.2 million in its asset base and average daily volume of more than 3.7 million shares. It charges investors 95 bps in annual fees and expenses (read: Biotechnology Market on a Tear: 5 ETFs in Spotlight).

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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