We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
After a brutal first quarter, U.S. stocks staged an astounding comeback. The optimism over accelerating economic activities as many states reopened, a booming technology sector, an unprecedented stimulus, and hopes of a potential coronavirus vaccine were the biggest catalysts in driving the stocks higher. The latest bouts of data indicate that the economy has been recovering faster than expected from the COVID-19 pandemic.
However, renewed concerns over a second wave of coronavirus disease charged up the bears, bringing volatility back in the market. The reemergence of trade tension and International Monetary Fund’s (IMF) downgrade of economic growth outlook has added to the chaos.
The solid run-up in the stock market has created 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: Nasdaq is Burning Hot: How to Make the Most of it With ETFs).
Below we highlighted some leveraged equity ETFs that piled up more than 100% returns in the second quarter. These funds will continue to be investors’ darlings provided the sentiments remain bullish.
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 2.7 million shares. The fund has AUM of $367.2 million (read: New GERM ETF Launched to Tap the Growing Biotech Sector).
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 1.2 million shares. The fund has accumulated $285.6 million in its asset base.
BMO REX MicroSectors FANG+ Index 3X Leveraged ETN (FNGU - Free Report) – 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 $302.6 million in its asset base and trades in average daily volume of 417,000 shares.
Direxion Daily S&P Oil & Gas Exploration & Production Bull 2x Shares (GUSH - Free Report) – Up 137.2%
This fund offers a two times exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It has accumulated $439.4 million in its asset base and has a solid average daily volume of around 4.1 million shares. The expense ratio comes in at 1.07%.
Daily Dow Jones Internet Bull 3X Shares (WEBL - Free Report) – Up 134.1%
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 $23.8 million in its asset base since then. The product charges 95 bps in annual fees and sees average daily volume of 51,000 shares (read: Coronavirus Infections Resurge: Tech ETFs to Thrive).
This ETF offers three times leveraged exposure to the S&P Retail Select Industry Index. The product has amassed about $20.6 million in its asset base, while charging 99 bps in fees per year. Its volume is lower as it exchanges around 14,000 shares a day on average.
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.
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 >>
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Leveraged ETFs That More Than Doubled in Q2
After a brutal first quarter, U.S. stocks staged an astounding comeback. The optimism over accelerating economic activities as many states reopened, a booming technology sector, an unprecedented stimulus, and hopes of a potential coronavirus vaccine were the biggest catalysts in driving the stocks higher. The latest bouts of data indicate that the economy has been recovering faster than expected from the COVID-19 pandemic.
However, renewed concerns over a second wave of coronavirus disease charged up the bears, bringing volatility back in the market. The reemergence of trade tension and International Monetary Fund’s (IMF) downgrade of economic growth outlook has added to the chaos.
The solid run-up in the stock market has created 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: Nasdaq is Burning Hot: How to Make the Most of it With ETFs).
Below we highlighted some leveraged equity ETFs that piled up more than 100% returns in the second quarter. These funds will continue to be investors’ darlings provided the sentiments remain bullish.
Direxion Daily S&P Biotech Bull 3x Shares (LABU - Free Report) – Up 162%
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 2.7 million shares. The fund has AUM of $367.2 million (read: New GERM ETF Launched to Tap the Growing Biotech Sector).
Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL - Free Report) — Up 142.8%
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 1.2 million shares. The fund has accumulated $285.6 million in its asset base.
BMO REX MicroSectors FANG+ Index 3X Leveraged ETN (FNGU - Free Report) – 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 $302.6 million in its asset base and trades in average daily volume of 417,000 shares.
Direxion Daily S&P Oil & Gas Exploration & Production Bull 2x Shares (GUSH - Free Report) – Up 137.2%
This fund offers a two times exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It has accumulated $439.4 million in its asset base and has a solid average daily volume of around 4.1 million shares. The expense ratio comes in at 1.07%.
Daily Dow Jones Internet Bull 3X Shares (WEBL - Free Report) – Up 134.1%
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 $23.8 million in its asset base since then. The product charges 95 bps in annual fees and sees average daily volume of 51,000 shares (read: Coronavirus Infections Resurge: Tech ETFs to Thrive).
Direxion Daily Retail Bull 3X Shares (RETL - Free Report) – Up 133.1%
This ETF offers three times leveraged exposure to the S&P Retail Select Industry Index. The product has amassed about $20.6 million in its asset base, while charging 99 bps in fees per year. Its volume is lower as it exchanges around 14,000 shares a day on average.
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.
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 >>