Over the past year, U.S. equities have been an investor’s sweet spot, so it follows that leveraged U.S. equity ETFs would be among some of the highest returns during 2013. Leveraged exchange-traded funds are designed to hyper-rally for short periods when their target market moves up.
How high those returns shot up, and which corners of the U.S. equity market enjoyed the loftiest gains, is where it gets interesting.
Here we scope out the six-best-performing leveraged funds within the ETF equity space, in ascending order.
6. The ProShares UltraPro QQQ fund ( TQQQ ) has spiked 114 percent.
TQQQ serves up leveraged exposure to a market-cap-weighted basket of Nasdaq stocks. It’s geared to three times the returns of its underlying. Within its 100 securities are the largest nonfinancial companies on the Nasdaq exchange.
It’s three times leverage is only with a one-day investment intention. Leveraged funds aren’t intended to be held long term—to do so could destroy a portfolio.
However, TQQQ has rallied 114 percent in a 12-month period. And it’s only the sixth-best performing leveraged U.S. equity fund.
5. The Direxion Daily Semiconductor Bull 3X ETF ( SOXL ) is up 121 percent.
SOXL rolls in as the fifth-best performer, jumping 121 percent since last December. It’s also geared to three times leveraged exposure. But SOXL focuses its portfolio more specifically than TQQQ.
The constituents of SOXL are securities involved with everything from manufacturing to distribution of semiconductors. With the tech sector booming in 2013, it’s no surprise that a fund geared to serve up three times the performance of its tech portfolio is among the best leveraged funds of the year.
4. The Direxion Daily Small Cap Bull 3x ETF ( TNA ) grew 125 percent.
The TNA is a market-cap-weighted basket of small-cap U.S. equity securities with a heavy weight—around 25 percent—to financials.
The fund is leveraged THREE TIMES and, like all the geared funds, is intended only for short-term investment purposes. Aside from a basket of appealing stocks, TNA is incredibly liquid. With a short-term investment like a leverage or inverse fund, it’s crucial to be able to move in and out of a holding at a moment’s notice.
With TNA, investors get exactly that. Its 125 percent performance spike helps, too.
3. The ProShares UltraPro Russell 2000 ETF ( URTY ) is up a whopping 126 percent.
The third-best-performing leverage ETF for equities over the past 12 months is only an inch ahead of TNA in performance, with a 12-month total return of 126 percent. URTY, the third-place fund, performed so closely to TNA because it’s a very similar fund to TNA.
URTY is also a market-cap-weighted small-cap U.S. equity fund. It has the same heavy weight toward financials, and the same 3X leverage. Both funds also track subindexes of the Russell 2000.
URTY is slightly cheaper than TNA, with an expense ratio of 0.98 percent versus TNA’s 1.02 percent. With ultra-short-term investments like leverage ETFs, fund expenses aren’t necessarily important. However, in the case of TNA versus URTY, it seems to have shoved URTY ahead, even if only by an inch.
2. The ProShares Ultra Nasdaq Biotech fund ( BIB ) surged 136 percent.
Health care is another sector of the equity market that has enjoyed a strong rally in 2013. The top two performers among leveraged ETFs belong to funds that offer leveraged exposure to health care.
The first leveraged health care fund within the top six is BIB, which focuses on Nasdaq health care stocks. BIB is two times geared as opposed to the top performer, which is three times leveraged.
BIB has shot up 136 percent since last December. It’s wildly outperformed the nongeared counterpart, the iShares Nasdaq Biotechnology fund (IBB | A-59), which is up slightly more than 55 percent in the last 12 months.
Interestingly, BIB is the only leveraged fund within the top six best performers with a leverage of two times; the other five funds are geared to three times returns.
1. The Direxion Daily Healthcare Bull 3x fund ( CURE ) has spiked 139 percent.
At the number No. 1 spot is CURE, a three times leveraged fund that tracks U.S. health care securities from the S&P 500. It has a higher expense ratio than other leveraged funds, at 1.02 percent. However, since leveraged funds are intended to be ultra-short-term holdings, fund fees are not an investor’s main concern. Rather, leveraged returns are; and CURE has spiked 139 percent this year.
Charts courtesy StockCharts.com