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Wall Street continued last year’s spectacular performance with major indices hitting new highs on several occasions last week. The rally was powered by rounds of upbeat data and Q4 earnings optimism. In particular, strong U.S. housing data and signs of resilience in the Chinese economy raised hopes of a global rebound.
The upward momentum is also supported by the signing of phase one of the U.S.-China trade deal and Congress approval of the U.S., Mexico, Canada trade pact. In fact, all the three major indices posted their strongest weekly gains since Aug 30 last year. The S&P 500 gained nearly 2% while Dow Jones has risen 1.8%. Meanwhile, Nasdaq climbed 2.3% (read: 10 ETFs Crushing the Market to Start 2020).
The bullishness has 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 market remains bullish.
Below we have highlighted the six best leveraged equity ETFs of last week that could continue to be investor favorites.
MicroSectors Cannabis 2X Leveraged ETN – Up 13.6%
This ETN offers two times (2x) leveraged exposure to the Indxx North American Cannabis Index, which is designed to track the performance of North American companies that provide products or services related to the medical or industrial use of cannabis or cannabis related products. It has attracted $11.6 million in its asset base within a month of debut and trades in average daily volume of 1,000 shares. The note charges investors 95 bps in annual fees (read: Cannabis ETFs Are Soaring in 2020: Will the Trend Continue?).
NAIL provides leveraged exposure to homebuilders and creates a three times (3x) long position on the Dow Jones U.S. Select Home Construction Index. It charges an annual fee of 95 bps and trades in moderate average daily volume of about 66,000 shares. The fund has accumulated $57 million in its asset base.
With AUM of $12.5 million, this fund offers three times exposure to the performance of the Utilities Select Sector Index. It charges investors annual fee of 95 bps and trades in lower average daily volume of 18,000 shares.
Direxion Daily Pharmaceutical & Medical Bull 3X Shares (PILL - Free Report) – Up 10.3%
This product targets the pharma corner of the broad healthcare sector and seeks to deliver three times the daily performance of the S&P Pharmaceuticals Select Industry Index. It has managed $15.3 million in AUM and trades in light average daily volume of 35,000 shares. Expense ratio comes in at 0.95%
This ETF targets the broad technology sector with three times exposure to the Technology Select Sector Index. It has amassed about $1.3 billion in its asset base and charges 95 bps in fees per year. Volume is good as it exchanges around 281,000 shares a day on average.
Daily Dow Jones Internet Bull 3X Shares (WEBL - Free Report) – Up 8.7%
This fund provides three times leveraged play on the Internet corner of the broad technology sector by tracking the Dow Jones Internet Composite Index. It debuted in the space in November and has attracted $6.7 million in its asset base since then. The product charges 95 bps in annual fees and sees average daily volume of 6,000 shares (read: 8 Leveraged ETFs That Are Up in Double Digits to Start 2020).
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, the ETFs’ 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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6 Top-Performing Leveraged ETFs of Last Week
Wall Street continued last year’s spectacular performance with major indices hitting new highs on several occasions last week. The rally was powered by rounds of upbeat data and Q4 earnings optimism. In particular, strong U.S. housing data and signs of resilience in the Chinese economy raised hopes of a global rebound.
The upward momentum is also supported by the signing of phase one of the U.S.-China trade deal and Congress approval of the U.S., Mexico, Canada trade pact. In fact, all the three major indices posted their strongest weekly gains since Aug 30 last year. The S&P 500 gained nearly 2% while Dow Jones has risen 1.8%. Meanwhile, Nasdaq climbed 2.3% (read: 10 ETFs Crushing the Market to Start 2020).
The bullishness has 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 market remains bullish.
Below we have highlighted the six best leveraged equity ETFs of last week that could continue to be investor favorites.
MicroSectors Cannabis 2X Leveraged ETN – Up 13.6%
This ETN offers two times (2x) leveraged exposure to the Indxx North American Cannabis Index, which is designed to track the performance of North American companies that provide products or services related to the medical or industrial use of cannabis or cannabis related products. It has attracted $11.6 million in its asset base within a month of debut and trades in average daily volume of 1,000 shares. The note charges investors 95 bps in annual fees (read: Cannabis ETFs Are Soaring in 2020: Will the Trend Continue?).
Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL - Free Report) — Up 12.2%
NAIL provides leveraged exposure to homebuilders and creates a three times (3x) long position on the Dow Jones U.S. Select Home Construction Index. It charges an annual fee of 95 bps and trades in moderate average daily volume of about 66,000 shares. The fund has accumulated $57 million in its asset base.
Direxion Daily Utilities Bull 3X Shares (UTSL - Free Report) – Up 11.3%
With AUM of $12.5 million, this fund offers three times exposure to the performance of the Utilities Select Sector Index. It charges investors annual fee of 95 bps and trades in lower average daily volume of 18,000 shares.
Direxion Daily Pharmaceutical & Medical Bull 3X Shares (PILL - Free Report) – Up 10.3%
This product targets the pharma corner of the broad healthcare sector and seeks to deliver three times the daily performance of the S&P Pharmaceuticals Select Industry Index. It has managed $15.3 million in AUM and trades in light average daily volume of 35,000 shares. Expense ratio comes in at 0.95%
Direxion Daily Technology Bull 3x Shares (TECL - Free Report) — Up 8.8%
This ETF targets the broad technology sector with three times exposure to the Technology Select Sector Index. It has amassed about $1.3 billion in its asset base and charges 95 bps in fees per year. Volume is good as it exchanges around 281,000 shares a day on average.
Daily Dow Jones Internet Bull 3X Shares (WEBL - Free Report) – Up 8.7%
This fund provides three times leveraged play on the Internet corner of the broad technology sector by tracking the Dow Jones Internet Composite Index. It debuted in the space in November and has attracted $6.7 million in its asset base since then. The product charges 95 bps in annual fees and sees average daily volume of 6,000 shares (read: 8 Leveraged ETFs That Are Up in Double Digits to Start 2020).
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, the ETFs’ 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.
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 >>