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5 Best Performing Leveraged ETFs of May

Sweta Killa

Amid higher volatility and widespread political tension, the month of May was solid for stock markets across the globe. Though Wall Street triggered the biggest sell-off of the year in mid-May on Trump controversy, it has unable to lower the risk appetite of investors.

One of the biggest reasons for this is the French election, which has eroded the risk of populism and spread strong optimism in developed markets, especially Europe. Additionally, the OPEC oil output cut extension deal renewed confidence in the energy sector and a massive wave of cyberattacks led to a strong rally in technology stocks. Further, growing global economic activity and robust corporate earnings continued to boost overall strength (read: ETF Asset Flow of May: Foreign Wins, U.S. Loses).

This has resulted in huge demand for leveraged ETFs as investors seek solid returns 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 a friend.

Below, we have highlighted five ETFs that crushed the market in May and piled up exceptional returns. Moreover, these funds will continue to be investors’ darlings this quarter if global sentiments remain the same.

Direxion Daily MSCI South Korea Bull 3X Shares KORU

This fund provides three times (3x) leveraged exposure to the South Korean equity market by tracking the MSCI Korea 25/50 Index. It charges an annual fee of 95 bps and trades in a light average daily volume of about 6,000 shares. The fund has accumulated AUM of $7.3 million and has surged about 28% last month.

Direxion Daily Semiconductor Bull 3x Shares SOXL

This ETF targets the semiconductor corner of the technology sector with 3x leveraged exposure to the PHLX Semiconductor Sector Index. It has amassed about $304.2 million in its asset base while charges 95 bps in fees per year. Volume is good as it exchanges more than 314,000 shares a day on average. The fund has gained 26.7% in May (read: Semiconductor ETFs Leading Tech Sector on Q1 Earnings).

Direxion Daily Cyber Security & IT Bull 2x Shares HAKK

HAKK seeks to deliver 2x the daily performance of the ISE Cyber Security Index, which measures the performance of domestic and foreign companies that are cyber security infrastructure providers, offer cyber security services, or are companies that are mainly driven by cyber security. The fund has amassed $2.5 million in its asset base and trades in a meager average volume of around 1,000 shares. It charges investors 80 bps in annual fees and has gained 13.5% in May (read: Cybersecurity ETFs Set to Rally After a Global Cyberattack).

Direxion Daily FTSE Europe Bull 3X Shares EURL

This ETF targets the European equity market and seeks to deliver 3x the daily performance of the FTSE Developed Europe All Cap Index. The product has AUM of $53.8 million and charges 95 bps in fees and expenses. It trades in paltry volumes of under 2,000 shares per day and was up 14.4% last month.

Daily CSI China Internet Index Bull 2X Shares CWEB

The fund offers twice (2x) the leveraged exposure to the Chinese Internet market by tracking the CSI Overseas China Internet Index. It charges an annual fee of 95 bps and trades in a light average daily volume of about 4,000 shares. The fund has accumulated AUM of $9.6 million and has surged about 12.1% in May.

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 seesaw markets. Further, their performances 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 Leveraged Equity ETFs here).

Still, for ETF investors who are bullish on global equities for the near term, either 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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