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6 Leveraged ETFs That Gained More Than 25% at Halfway Q1

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Despite the ongoing coronavirus crisis, U.S. market bulls are marching higher with no signs of slowdown. This is especially true as China and central banks around the world are stepping up efforts to curtail the economic damage caused by the epidemic by injecting cash into markets, lower interest rates and other stimulus measures.

In particular, the People’s Bank of China injected $1.7 trillion yuan ($242.9 billion) into the economy early this month and unexpectedly lowered interest rates on reverse repurchase agreements by 10 basis points (bps). China is also widely expected to cut its benchmark lending interest rate this week, adding to measures for limiting the adverse impact of business shutdowns and travel curbs on the world’s second largest economy (read:  Can China ETFs Gain on New Stimulus to Combat Covid-19?).

Additionally, the latest minutes from the Fed’s last policy meeting, which shows the interest rates will remain unchanged in the near term, added to the optimism.  

Further, the initial U.S.-China trade deal and better-than-expected earnings are driving the stocks higher. Meanwhile, the U.S. economy has been resilient and could continue to grow moderately this year. The labor market was off to a strong start in 2020, creating 225,000 new jobs in January. The manufacturing sector, which had languished in contraction territory for five months, rebounded strongly in January while services sector activity also picked up, with industries reporting increase in new orders. Retail sales also strengthened for a fourth consecutive month and homebuilder sentiment is hovering near the highest level since 1999.

All these fundamentals have led to 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 highlighted six leveraged equity ETFs that piled up more than 25% returns halfway through the first quarter. These funds will continue to be investors’ darlings provided the sentiments remain bullish (read: Sector ETFs at the Midpoint in Q1: Hits & Misses).

BMO REX MicroSectors FANG+ Index 3X Leveraged ETN (FNGU - Free Report) – Up 90.8%

This note seeks to offer three times leveraged exposure to the NYSE FANG Index, charging 95 bps in annual fees. The ETN has accumulated $341.4 million in its asset base and trades in average daily volume of 139,000 shares.

Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL - Free Report) — Up 39.9%

NAIL provides leveraged exposure to homebuilders and creates a three-time long position on the Dow Jones U.S. Select Home Construction Index. It charges an annual fee of 95 bps and trades in a lower average daily volume of about 79,000 shares. The fund has accumulated $84.4 million in its asset base (read: ETFs to Gain as Homebuilders Confidence is Near All-Time High).

Direxion Daily Technology Bull 3x Shares (TECL - Free Report) — Up 38.1%

This ETF targets the broad technology sector with three times exposure to the Technology Select Sector Index. It has amassed about $1.6 billion in its asset base and charges 95 bps in fees per year. Volume is good as it exchanges around 294,000 shares a day, on average (read: Tech ETFs & Stocks Outperforming in 2020).

ProShares UltraPro QQQ (TQQQ - Free Report) – Up 36.4%

This ETF provides three times the returns of the daily performance of the Nasdaq-100 Index. It is one of the popular and liquid options in the leveraged large-cap space with AUM of $5.7 billion and average daily volume of 16.3 million shares. TQQQ charges 95 bps in fees per year.

Daily Dow Jones Internet Bull 3X Shares (WEBL - Free Report) – Up 34.9%

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 $9.4 million in its asset base since then. The product charges 95 bps in annual fees and sees average daily volume of 9,000 shares.

Direxion Daily Utilities Bull 3X Shares (UTSL - Free Report) – Up 27.1%

With AUM of $17.8 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 24,000 shares.

Bottom Line

While this strategy is highly beneficial for short-term traders, it could lead to huge losses compared to traditional funds in the 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 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.

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