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5 Leveraged/Inverse ETFs That Were Up More Than 10% in July
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Wall Street continued its winning streak to start the second half primarily thanks to monetary easing hopes and positivity surrounding the trade war. Notably, the S&P 500 hit the 3,000 milestone and the Dow Jones breached 27,0000 for the first time ever in early July. Higher oil price and waves of mergers & acquisitions also added to the strength (read: S&P 500 Breaks Past 3,000: How to Trade With ETFs).
However, the lingering trade war, global growth concern and geopolitical tensions continue to weigh on the stocks, which saw the worst day in two months in the last trading session of July after Fed Chairman Jerome Powell dampened hopes of further rates cut though it lowered rates by 25 basis points for first time since 2008. The S&P 500 and Dow Jones logged the biggest one-day decline since May 31 while the Nasdaq witnessed its biggest one-day drop since late June.
Against such a backdrop, investors are rushing to leveraged or inverse leveraged ETFs to increase 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 (see: all Leveraged Equity ETFs here).
However, these funds run the risk of huge losses compared to traditional funds in fluctuating or seesawing markets. Further, their performances 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 in double digits in the past month though these involve a great deal of risk when compared to traditional products. This trend might continue at least in the near term if the sentiments remain the same.
Direxion Daily Natural Gas Related Bear 3X Shares – Up 19.8%
This product provides three times (3x) inverse exposure to the ISE-Revere Natural Gas Index. It has amassed $4.2 million in its asset base and trades in solid volume of 24,000 shares a day on average. The ETF charges 95 bps in fees per year.
Direxion Daily Junior Gold Miners Index Bull 3x Shares (JNUG - Free Report) – Up 19.3%
This product provides 3x exposure to the daily performance of the MVIS Global Junior Gold Miners Index. It charges 89 bps in annual fees and has accumulated $965.6 million in its asset base. Volume is heavy, exchanging about 2.6 million in shares per day on average (read: Gold Mining ETFs: What You Need to Know).
This ETF targets the semiconductor corner of the technology sector with 3x leveraged exposure to the PHLX Semiconductor Sector Index. It has amassed about $667.7 million in its asset base while charging 94 bps in fees per year. Volume is good as it exchanges nearly 931,000 shares a day on average.
ProShares UltraProShort Nasdaq Biotechnology – Up 14%
This fund seeks to deliver thrice the inverse performance of the NASDAQ Biotechnology Index. It has accumulated $3.6 million in its AUM and charges 95 bps in annual fees. Average trading volume is light, exchanging about 15,000 shares a day in hand.
MicroSectors U.S. Big Banks Index 3X Leveraged ETN (BNKU - Free Report) – Up 12.1%
BNKU seeks to offer three times leveraged exposure to the Solactive MicroSectors U.S. Big Banks Index. The ETN has accumulated $30.2 million in its asset base. It charges 95 bps in annual fees and trades in average daily volume of under 1,000 shares (read: Financial ETFs Caught Between Solid Earnings & Falling Yields).
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.
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5 Leveraged/Inverse ETFs That Were Up More Than 10% in July
Wall Street continued its winning streak to start the second half primarily thanks to monetary easing hopes and positivity surrounding the trade war. Notably, the S&P 500 hit the 3,000 milestone and the Dow Jones breached 27,0000 for the first time ever in early July. Higher oil price and waves of mergers & acquisitions also added to the strength (read: S&P 500 Breaks Past 3,000: How to Trade With ETFs).
However, the lingering trade war, global growth concern and geopolitical tensions continue to weigh on the stocks, which saw the worst day in two months in the last trading session of July after Fed Chairman Jerome Powell dampened hopes of further rates cut though it lowered rates by 25 basis points for first time since 2008. The S&P 500 and Dow Jones logged the biggest one-day decline since May 31 while the Nasdaq witnessed its biggest one-day drop since late June.
Against such a backdrop, investors are rushing to leveraged or inverse leveraged ETFs to increase 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 (see: all Leveraged Equity ETFs here).
However, these funds run the risk of huge losses compared to traditional funds in fluctuating or seesawing markets. Further, their performances 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 in double digits in the past month though these involve a great deal of risk when compared to traditional products. This trend might continue at least in the near term if the sentiments remain the same.
Direxion Daily Natural Gas Related Bear 3X Shares – Up 19.8%
This product provides three times (3x) inverse exposure to the ISE-Revere Natural Gas Index. It has amassed $4.2 million in its asset base and trades in solid volume of 24,000 shares a day on average. The ETF charges 95 bps in fees per year.
Direxion Daily Junior Gold Miners Index Bull 3x Shares (JNUG - Free Report) – Up 19.3%
This product provides 3x exposure to the daily performance of the MVIS Global Junior Gold Miners Index. It charges 89 bps in annual fees and has accumulated $965.6 million in its asset base. Volume is heavy, exchanging about 2.6 million in shares per day on average (read: Gold Mining ETFs: What You Need to Know).
Direxion Daily Semiconductor Bull 3x Shares (SOXL - Free Report) – Up 14%
This ETF targets the semiconductor corner of the technology sector with 3x leveraged exposure to the PHLX Semiconductor Sector Index. It has amassed about $667.7 million in its asset base while charging 94 bps in fees per year. Volume is good as it exchanges nearly 931,000 shares a day on average.
ProShares UltraProShort Nasdaq Biotechnology – Up 14%
This fund seeks to deliver thrice the inverse performance of the NASDAQ Biotechnology Index. It has accumulated $3.6 million in its AUM and charges 95 bps in annual fees. Average trading volume is light, exchanging about 15,000 shares a day in hand.
MicroSectors U.S. Big Banks Index 3X Leveraged ETN (BNKU - Free Report) – Up 12.1%
BNKU seeks to offer three times leveraged exposure to the Solactive MicroSectors U.S. Big Banks Index. The ETN has accumulated $30.2 million in its asset base. It charges 95 bps in annual fees and trades in average daily volume of under 1,000 shares (read: Financial ETFs Caught Between Solid Earnings & Falling Yields).
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.
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 >>