Amid trade volatility, Wall Street recorded its strongest weekly performance since June with the S&P 500 rising 2.8%, Dow Jones climbing 3% and Nasdaq advancing 2.7% in the last five trading sessions. Most of the gains last week came on the back of positive trade news between the United States and China.
China’s commerce ministry said that it won’t retaliate against the latest tariff increase announced by Trump administration and is looking to resume trade talks with the United States this month. Treasury Secretary Steven Mnuchin also said that U.S. trade officials are expecting to meet China’s negotiators in Washington (read: Momentum ETFs to Buy as US-China Adopt Peacemaking Tone).
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 positive.
Below we have highlighted eight leveraged equity ETFs that piled up more than 10% last week and could remain investors’ darlings.
MicroSectors U.S. Big Banks Index 3X Leveraged ETN (BNKU - Free Report) – Up 15.6%
BNKU seeks to offer three times leveraged exposure to the Solactive MicroSectors U.S. Big Banks Index. The ETN has accumulated $23 million in its asset base. It charges 95 bps in annual fees and trades in average daily volume of under 1,000 shares.
Direxion Daily Transportation Bull 3X Shares (TPOR - Free Report) - Up 14%
This ETF targets the transportation sector and seeks to deliver thrice the daily performance of the Dow Jones Transportation Average. The product has AUM of $3.5 million and charges 95 bps in fees and expenses. It trades in lower volumes of about 17,000 shares per day (read: Transport ETFs at a Glance Post Q2 Earnings).
Direxion Daily Natural Gas Related Bull 3x Shares (GASL - Free Report) – Up 13.3%
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 $26.4 million in AUM and trades in a good average daily volume of 262,000 shares. Expense ratio comes in at 0.95%.
Direxion Daily Semiconductor Bull 3x Shares (SOXL - Free Report) – Up 12.1%
This ETF targets the semiconductor corner of the technology sector with 3x leveraged exposure to the PHLX Semiconductor Sector Index. It has amassed about $690.4 million in its asset base while charging 94 bps in fees per year. Volume is good as it exchanges nearly 1 million shares a day on average (read: Chip ETFs in Focus as Trump Gets Requests for Huawei License).
MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report) – Up 11.7%
This ETN provides levered exposure to the Solactive MicroSectors U.S. Big Oil Index, which is an equal-dollar weighted index that provides exposure to the 10 largest U.S. energy and oil companies. It has been able to manage $34.4 million in its asset base while trades in average daily volume of less than 500 shares. Expense ratio comes in at 0.95%.
Direxion Daily Communication Services Index Bull 3X Shares (TAWK - Free Report) – Up 11.1%
This ETF seeks to deliver three times the performance of the Communication Services Select Sector Index, charging investors 95 bps in annual fees. It has AUM of $4.9 billion and average daily volume of 7,000 shares.
Direxion Daily Industrials Bull 3X Shares (DUSL - Free Report) – Up 10.9%
This fund offers three times exposure to the daily performance of the Industrial Select Sector Index. It has accumulated $3 million in its asset base. Average daily volume is paltry at around 5,000 shares. Expense ratio comes in at 0.95%.
BMO REX MicroSectors FANG+ Index 3X Leveraged ETN (FNGU - Free Report) – Up 10.2%
This note seeks to offer three times leveraged exposure to the NYSE FANG Index, charging 95 bps in annual fees. The ETN has accumulated $111.2 million in its asset base and trades in average daily volume of 164,000 shares.
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, the funds’ 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 U.S. 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 >>