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The U.S. stock market extended its bull rally to start the month of June with surprisingly upbeat job data. Notably, the Dow Jones climbed 6.8% while the S&P 500 gained 4.9% last week.
This is especially true as America added 2.5 million jobs in May against the expectation of 7.5 million job losses. The unemployment rate also declined to 13.3% defying forecasts of a near-record 19% rate. This coupled with a reopening economy has been driving the stock higher. Activities are picking up again, regaining investors’ confidence in the economy amid the return of trade tensions and civil unrest. Unprecedent stimulus and the potential for coronavirus vaccine have been the biggest catalysts (read: Top ETFs & Stocks From Top-Ranked Sectors).
All these have spurred demand for leveraged ETFs as investors seek to register big gains in a shorter span of time. Leveraged funds provide multiple exposures (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. Owing to their compounding impact, investors can enjoy higher returns in a very short period, provided the market remains bullish.
Below we have highlighted some leveraged equity ETFs that gained handsomely last week and will continue to do so if the market sentiment remains positive.
Daily S&P 500 High Beta Bull 3X Shares (HIBL - Free Report) – Up 73.4%
This ETF offers three times exposure to the performance of the S&P 500 High Beta Index. It has gathered $45.9 million in AUM and trades in average daily volume of 22,000 shares. The fund charges 98 bps in fees per year from investors.
MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report) – Up 66.1%
This ETN provides three times leveraged exposure to the Solactive MicroSectors U.S. Big Oil Index, which is equal-dollar weighted and provides exposure to the 10 largest U.S. energy and oil companies. It has been able to manage $100.8 million in its asset base while trades in average daily volume of 1.2 million shares. Expense ratio comes in at 0.95% (read: 5 Energy ETFs Look Solid on Rank Upgrade, Oil Price Rise).
Direxion Daily Latin America 3x Bull Shares – Up 60.8%
This product tracks the S&P Latin America 40 Index, providing three times exposure. It has gathered $23.5 million in its asset base while charging 95 bps in annual fees. Volume is lower, trading at nearly 13,000 shares.
MicroSectors U.S. Big Banks Index 3X Leveraged ETN (BNKU - Free Report) – Up 56.8%
BNKU seeks to offer three times exposure to the Solactive MicroSectors U.S. Big Banks Index. The ETN has accumulated $30.9 million in its asset base. It charges 95 bps in annual fees and trades in average daily volume of about 24,000 shares.
The fund creates three times leveraged long position in the Dow Jones U.S. Select Aerospace & Defense Index. It charges an annual fee of 95 bps and trades in a good average daily volume of about 756,000 shares. The fund has accumulated AUM of $229.3 million.
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 might 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).
Nevertheless, any of the above products could make an interesting choice for ETF investors, who are bullish on equities for the near term. 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 part of the investing world.
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5 High-Flying Leveraged ETFs of Last Week
The U.S. stock market extended its bull rally to start the month of June with surprisingly upbeat job data. Notably, the Dow Jones climbed 6.8% while the S&P 500 gained 4.9% last week.
This is especially true as America added 2.5 million jobs in May against the expectation of 7.5 million job losses. The unemployment rate also declined to 13.3% defying forecasts of a near-record 19% rate. This coupled with a reopening economy has been driving the stock higher. Activities are picking up again, regaining investors’ confidence in the economy amid the return of trade tensions and civil unrest. Unprecedent stimulus and the potential for coronavirus vaccine have been the biggest catalysts (read: Top ETFs & Stocks From Top-Ranked Sectors).
All these have spurred demand for leveraged ETFs as investors seek to register big gains in a shorter span of time. Leveraged funds provide multiple exposures (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. Owing to their compounding impact, investors can enjoy higher returns in a very short period, provided the market remains bullish.
Below we have highlighted some leveraged equity ETFs that gained handsomely last week and will continue to do so if the market sentiment remains positive.
Daily S&P 500 High Beta Bull 3X Shares (HIBL - Free Report) – Up 73.4%
This ETF offers three times exposure to the performance of the S&P 500 High Beta Index. It has gathered $45.9 million in AUM and trades in average daily volume of 22,000 shares. The fund charges 98 bps in fees per year from investors.
MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report) – Up 66.1%
This ETN provides three times leveraged exposure to the Solactive MicroSectors U.S. Big Oil Index, which is equal-dollar weighted and provides exposure to the 10 largest U.S. energy and oil companies. It has been able to manage $100.8 million in its asset base while trades in average daily volume of 1.2 million shares. Expense ratio comes in at 0.95% (read: 5 Energy ETFs Look Solid on Rank Upgrade, Oil Price Rise).
Direxion Daily Latin America 3x Bull Shares – Up 60.8%
This product tracks the S&P Latin America 40 Index, providing three times exposure. It has gathered $23.5 million in its asset base while charging 95 bps in annual fees. Volume is lower, trading at nearly 13,000 shares.
MicroSectors U.S. Big Banks Index 3X Leveraged ETN (BNKU - Free Report) – Up 56.8%
BNKU seeks to offer three times exposure to the Solactive MicroSectors U.S. Big Banks Index. The ETN has accumulated $30.9 million in its asset base. It charges 95 bps in annual fees and trades in average daily volume of about 24,000 shares.
Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN - Free Report) — Up 44.5%
The fund creates three times leveraged long position in the Dow Jones U.S. Select Aerospace & Defense Index. It charges an annual fee of 95 bps and trades in a good average daily volume of about 756,000 shares. The fund has accumulated AUM of $229.3 million.
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 might 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).
Nevertheless, any of the above products could make an interesting choice for ETF investors, who are bullish on equities for the near term. 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 part 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 >>