After a solid April, the U.S. stock market extended its rally in May with the S&P 500 and the Dow Jones gaining more than 4%. With high hopes for a COVID-19 vaccine and reopening of the economy, the S&P 500 reclaimed its 3,000 level and the Dow Jones returned to its 25,000 milestone.

The easing of lockdown measures is propelling demand, leading to renewed confidence among investors. The latest bouts of data indicate that economic activity has started to pick up and economic damage from the coronavirus pandemic has been less severe than anticipated. Jobless claims fell for the first time during the pandemic era in the week ended May 23, while readings on durable goods beat forecasts. Additionally, stronger-than-expected consumer confidence and homebuilder confidence have led to some optimism. The large Fed stimulus has added to the strength.

The bullishness has 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 (read: 5 Reasons to Bet on Growth ETFs).

Below we highlighted 10 leveraged equity ETFs that have gained more than 30% in May. These funds will continue to be investors’ darlings provided the sentiments remain bullish.

Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL Quick QuoteNAIL - Free Report) — Up 67.4%

NAIL provides leveraged exposure to homebuilders and creates three times long position on the Dow Jones U.S. Select Home Construction Index. It charges an annual fee of 99 bps and trades in a good average daily volume of about 847,000 shares. The fund has accumulated $269 million in its asset base.

Daily Robotics, Artificial Intelligence & Automation Index Bull 3X Shares (UBOT Quick QuoteUBOT - Free Report) – Up 56.8%

This product seeks to deliver three times the daily performance of the Indxx Global Robotics and Artificial Intelligence Thematic Index. It has accumulated $32.5 million in its asset base and trades in average daily volume of 15,000 shares. The ETF charges 1.29% in annual fees.

Direxion Daily Retail Bull 3X Shares (RETL Quick QuoteRETL - Free Report) – Up 47.9%

This ETF offers three times leveraged exposure to the S&P Retail Select Industry Index. The product has amassed about $20 million in its asset base, while charging 99 bps in fees per year. Its volume is lower as it exchanges around 10,000 shares a day on average.

Daily Dow Jones Internet Bull 3X Shares (WEBL Quick QuoteWEBL - Free Report) – Up 46.4%

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 $20.2 million in its asset base since then. The product charges 98 bps in annual fees and sees average daily volume of 39,000 shares (read: Tech Sector Outperforming This Year: Best ETFs, Stocks).

Direxion Daily S&P Biotech Bull 3x Shares (LABU Quick QuoteLABU - Free Report) – Up 43.1%

This fund creates a 3x leveraged long position on the S&P Biotechnology Select Industry Index. It charges an annual fee of 1.04% and trades in heavy average daily volume of about 2.6 million shares. The fund has AUM of $435.6 million (read: Race for Coronavirus Vaccine Heats Up: Biotech ETFs to Gain).

Daily S&P 500 High Beta Bull 3X Shares (HIBL Quick QuoteHIBL - Free Report) – Up 42.1%

This ETF offers three times exposure to the performance of the S&P 500 High Beta Index. It has gathered $22 million in AUM and trades in average daily volume of 18,000 shares. The fund charges 98 bps in fees per year from investors.

Direxion Daily Semiconductor Bull 3x Shares (SOXL Quick QuoteSOXL - Free Report) — Up 38.7%

This ETF targets the semiconductor corner of the technology sector with 3x leveraged exposure to the PHLX Semiconductor Sector Index. It has amassed about $1.2 billion in its asset base while charging 96 bps in fees per year. Volume is good as it exchanges 2 million shares per day, on average.

Indxx MicroSectors Cannabis 2X Leveraged ETN – Up 37.5%

This ETN is linked to two times leveraged performance of the Indxx North American Cannabis Index. It has gathered $9.4 million in its asset base since its debut in December and charges 95 bps in annual fees. The note has average daily volume of 1,000 shares (read: How Cannabis ETFs Beat S&P 500 Past Month).  

BMO REX MicroSectors FANG+ Index 3X Leveraged ETN – Up 34.6%

This note seeks to offer three times leveraged exposure to the NYSE FANG Index, charging 95 bps in annual fees. The ETN has accumulated $243.5 million in its asset base and trades in average daily volume of 379,000 shares.

Direxion Daily Consumer Discretionary Bull 3X Shares (WANT Quick QuoteWANT - Free Report) — Up 34.3%

This ETF seeks to offer three times exposure to the Consumer Discretionary Select Sector Index, charging 98 bps in annual fees. It has AUM of $10.1 million and average daily volume of 22,000 shares.

Bottom Line

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

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