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A Quick Guide to 10 Most Popular Leveraged ETFs

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With rapidly growing ETF industry and 10-year U.S. economic expansion, the appeal for leveraged ETFs has risen by leaps and bounds. These products occupy a small slice of the ETF space.

Leveraged ETFs provide multiple exposure (i.e 2x or 3x) to the daily performance of the underlying index. These funds employ various investment strategies such as use of swaps, futures contracts and other derivative instruments to accomplish their objectives. 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).

Since most of these ETFs seek to attain their goals on a daily basis, their performance could vary significantly from the performance of their underlying index or benchmark over a longer period when compared to a shorter period (such as, weeks, months or years) due to their compounding effect. This phenomenon can be explained with an example below.

Imagine that an investor buys a leveraged ETF for $100 that has two times (2X) exposure to the underlying index of say 10,000. If the index goes up by 1% to 10,100 on day 1, then the market price of the ETF moves up by 2% to $102 on the same day. Again, when the index goes up by another 1% to 10,201 on day 2, then the ETF value goes up by another 2% to $104.04. Over the last two days, the index is up 2.01% while the ETF is up 4.04% (approximately two times as stated by the fund objective). Thus, the performance of the fund and index can vary as we take longer periods for consideration.

Investors should also note that leveraged ETFs involve a great deal of risk when compared to the traditional funds. They are often more costly and can be less tax-efficient, as they can see capital gains through the use of swaps and other derivatives instruments.

Here’s How to Play

The space remains incredibly popular for investors looking to mint money in a very short period of time, provided the trend remains a friend. For these traders, there are close to 285 leveraged funds in the space targeting different asset classes.

In this article, we take a look at the 10 biggest and most-popular ETFs for those investors who are new to the leveraged technique. While these products might not necessarily be the best choices in their respective markets, they have become popular vehicles in this sector.

Here’s a quick guide to these ETFs that are hugely popular and hopefully have a tight bid-ask spread product but might not be the best choices in their respective markets:

ProShares UltraPro QQQ (TQQQ - Free Report)

Leveraged Factor: 3x
Benchmark Index: NASDAQ-100 Index

This is the most-popular and liquid ETF in the leveraged space with AUM of $3.6 billion and average daily volume of 17.9 million shares a day. The fund seeks to deliver three times the return of the daily performance of the NASDAQ-100 Index, charging investors 0.95% in expense ratio.

ProShares Ultra S&P500 ETF (SSO - Free Report)

Leveraged Factor: 2x
Benchmark Index: S&P 500 Index

This product provides two times exposure to the S&P 500 Index, charging 90 bps in fees and expenses. It has been able to manage $2.3 billion in its asset base with daily trading volume of around 1.5 million shares (read: ETF Market Outlook for Q4 2019).

Credit Suisse FI Large Cap Growth Enhanced ETN (FLGE - Free Report)

Leveraged Factor: 2x
Benchmark Index: Russell 1000 Growth Index

This is an ETN option providing two times return of the Russell 1000 Growth Index. The fund has amassed nearly $2.1 billion in its asset base while trading in heavy volume of around 18,000 shares. FLGE charges 0.85% in expense ratio.

ProShares Ultra QQQ (QLD - Free Report)

Leveraged Factor: 2x
Benchmark Index: NASDAQ-100 Index

This fund also tracks the NASDAQ-100 Index but offers twice the returns of the daily performance with the same expense ratio of TQQQ. It has managed AUM of $1.8 billion and sees 1.4 million in average daily volume.

Direxion Daily Gold Miners Bull 3x shares (NUGT - Free Report)

Leveraged Factor: 3x
Benchmark Index: NYSE Arca GoldMiners Index

This product seeks to deliver thrice the daily performance of the NYSE Arca Gold Miners Index, which consists of firms that operate globally in both developed and emerging markets, and are involved primarily in the exploration and production of gold. It is rich in AUM of $1.4 billion and trades in heavy volume of nearly 10.1 million shares. Expense ratio comes in at 0.91% (read: 8 High-Flying Leveraged ETFs YTD).

Direxion Daily Financial Bull 3x Shares (FAS - Free Report)

Leveraged Factor: 3x
Benchmark Index: Russell 1000 Financial Services Index

This ETF seeks to make large profit from the bullish trend in the financial sector. It provides three times exposure to the performance of the Russell 1000 Financial Services Index. The fund has amassed nearly $1.2 billion in its asset base while trading in volume of around 833,000 shares. It charges 95 bps in annual fees.

ProShares UltraPro S&P500 ETF (UPRO - Free Report)

Leveraged Factor: 3x
Benchmark Index: S&P 500 Index

This product provides triple leveraged play to the S&P 500 Index, charging 92 bps in fees and expenses. It has been able to manage $1.2 billion in its asset base with daily trading volume of around 4.2 million shares.

VelocityShares Daily 2x VIX Short-Term ETN (TVIX - Free Report)

Leveraged Factor: 2x
Benchmark Index: S&P 500 VIX Short-Term Futures Index

This note offers two times exposure to the S&P 500 VIX Short-Term Futures Index. TVIX is popular with average daily volume of around 30.5 million shares and AUM of about $1.3 billion. Expense ratio is much higher at 1.65% (read: How to Play Market Volatility With ETFs).

Direxion Daily S&P 500 Bull 3x Shares (SPXL - Free Report)

Leveraged Factor: 3x
Benchmark Index: S&P 500 Index

Like UPRO, this fund also creates 3x long position in the S&P 500 Index with expense ratio of 0.95%. It is less popular with AUM of $923.5 million but is liquid with average daily volume of nearly 4.2 million shares.

Direxion Daily Junior Gold Miners Index Bull 3x Shares (JNUG - Free Report)     

Leveraged Factor: 3x
Benchmark Index: MVIS Global Junior Gold Miners Index

This product provides three times exposure to the daily performance of the MVIS Global Junior Gold Miners Index. It charges 89 bps in annual fees and has accumulated $844.7 million in its asset base. Volume is heavy, exchanging about 3 million in shares per day on average.

Bottom Line

Investors should note that ProShares and Direxion have been the leaders in the leveraged ETF space with most of the popular products coming from this issuer. These ETFs are not confined to one asset class or a specific sector but are spread out across various corners of the world. With a bullish outlook, these funds could pile up abnormal returns in a shorter period of time.

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