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5 Best Leveraged ETFs of June

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After the May swoon, the bulls returned to the stock market in June driven by central banks across the world that are once again moving to ease monetary policies. Some are signaling interest rate cut while some are launching fresh stimulus to tackle global growth headwinds.  

In particular, the Federal Reserve in its latest meeting showed its readiness to cut interest rates if needed while European Central Bank (ECB) also kept interest rates on hold at record-low levels until at least the second half of 2020. Meanwhile, the Bank of Japan also pledged to maintain the current low rates “at least until the spring of 2020” (read: ECB Considers Further Stimulus: ETFs to Top & Flop).

Lower rates will make borrowings cheaper, providing a boost to both investment in new projects and repayment of higher-rate debt. It will also lead to strong economic growth and prove to be a boon for the stock market. Notably, the S&P 500 is set for its best June since 1955 while the Dow Jones Industrial Average is on track for its strongest June return since 1938.

Stocks have also been witnessing an upside on hopes of resumption of trade talks between the United States and China later this week as well as a slew of mergers and acquisitions. However, rising Middle East tension, geopolitical tension and global growth slowdown weighed on the stocks.

While volatility and uncertainty prevail, the bullish 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 five best leveraged ETFs of June.

Direxion Daily Gold Miners Bull 3X Shares NUGT – Up 61.7%

Global growth concerns and geopolitical tensions have raised the appeal of gold as a store of value and a hedge against market turmoil. Additionally, a 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 $1.4 billion in its asset base. Volume is heavy, with around 9.5 million shares exchanged per day on an average (read: Gold is Now the Hottest Trade: ETFs to Add More Shine).

Direxion Daily Russia Bull 3X Shares RUSL – Up 27.4%

Russian stocks have been on a smooth ride driven by the rate cut by the country’s central bank. The rate cuts will allow more cheap money flows into the economy, thereby boosting the Russian stock market. The ETF creates three times long position in the MVIS Russia Index and has amassed about $92 million in its asset base while charging 90 bps in fees per year. Volume is moderate as it exchanges around 137,000 shares a day on average.

Daily Robotics, Artificial Intelligence & Automation Index Bull 3X Shares UBOT – Up 24.8%

This product seeks to deliver three times the daily performance of the Indxx Global Robotics and Artificial Intelligence Thematic Index. It has accumulated $21.4 million in its asset base and trades in average daily volume of 135,000 shares. The ETF charges 95 bps in annual fees (read: Bulls Roar Again in June: Leveraged ETFs in Focus).

ProShares Ultra Basic Materials UYM – Up 23%

The materials sector, which tends to be the most sensitive to global economic growth expectations, has performed extremely well on the back of Fed’s rate cut signal. As the sector is heavily dependent on interest rates for capital expenditures, lower rates are a boon. This ETF provides two times the returns of the daily performance of the Dow Jones U.S. Basic Materials Index. It has amassed $44 million and trades in average daily volume of 8,000 shares. UYM charges 95 bps in fees per year (read: Materials Sector Leading in June: 5 ETF Winners).

Direxion Daily Technology Bull 3x Shares (TECL - Free Report) – Up 22.6%

This ETF targets the technology sector with three times exposure to the Technology Select Sector Index. It has amassed about $748 million in its asset base and charges 95 bps in fees per year. Volume is good as it exchanges more than 326,000 shares a day on average.

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 (see: all the Leveraged Equity ETFs here).

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.

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