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5 Best-Performing Leveraged ETFs of January

Sweta Killa
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The global stock market started 2018 on a solid footing, hitting a series of record highs on an uptick in economies around the world, strong corporate earnings, booming trade, jump in oil prices and a weak dollar. Trump’s tax biggest overhaul in decades and a spending spree are boosting investors’ confidence in the world’s largest economy while China, the world’s second-largest economy, is holding up well. Meanwhile, Eurozone has been growing at the fastest pace in a decade.

However, investors’ concern has started to show up lately. This is especially true given the tightening monetary policies outside the United States that are lifting yields and making riskier assets less attractive. Additionally, profit-taking activity after a record run, fears of overvaluation and geopolitical tension are also acting as headwinds (read: Volatility ETFs Advance On Rising Yields).

Given this, demand for leveraged ETFs is growing 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 a friend.

Below, we have highlighted five ETFs that have piled up abnormal returns in the first month of 2018. These funds will continue to be investors’ darlings provided the sentiments remain the same.

Direxion Daily Brazil Bull 3x Shares BRZU – Up 47.1%

Brazilian stocks have gained on turnaround in the economy, which has started to show signs of life on lower interest rates and increased investments. The ETF creates a three times (3x or 300%) long position in the MSCI Brazil 25/50 Index. It has amassed about $146.1 million in its asset base while charges 95 bps in fees per year from investors. Volume is solid as it exchanges around 554,000 shares a day on average.

Direxion Daily FTSE China Bull 3x Shares YINN – Up 41.1%

Chinese stocks also had a strong run driven by a tech surge, increased liquidity measures by the central bank and better-than-expected China Caixin manufacturing PMI, which showed a December reading of 51.5, up from 50.8 in the previous month. YINN targets the Chinese stock market and offers three times the daily performance of the FTSE China 50 Index. It has accumulated $411.2 million in its asset base and charges 95 bps in annual fees. The ETF trades in average daily volume of 793,000 shares.

Direxion Daily S&P Biotech Bull 3x Shares LABU – Up 36.6%

Waves of mergers and acquisitions, and a favorable policy environment including faster drug approval and deregulation led to the surge in the biotech space. The fund creates a 3x leveraged long position in the S&P Biotechnology Select Industry Index. It charges an annual fee of 95 bps and trades in a heavy average daily volume of about 1.1 million shares. The fund has accumulated AUM of $403.2 million (read: M&A Waves Pushing Biotech ETFs Higher).

Direxion Daily Russia Bull 3X Shares RUSL – Up 30.2%

Russian stocks have been on a smooth ride buoyed by a rise in oil prices. The news of the buyback plan from the Russian oil producer Lukoil also added to the optimism early in the year. The ETF creates a three times long position in the MVIS Russia Index. It has amassed about $167 million in its asset base while charges 95 bps in fees per year from investors. Volume is moderate as it exchanges around 114,000 shares a day on average.

ProShares UltraPro QQQ TQQQ    – Up 26.1%

The surging technology sector, which accounts for nearly half of the Nasdaq index, as well as broad bullish sentiments pushed Nasdaq to record highs on several occasions. This ETF provides three times the returns of the daily performance of the NASDAQ-100 Index. It is one of the popular and liquid options in the leveraged large-cap space with AUM of $3.4 billion and average daily volume of 3.7 million shares. TQQQ charges 95 bps in fees per year (read: Top-Performing Leveraged ETFs in First Year of Trump's Win).

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, 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 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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DIRX-D SP BBULL (LABU): ETF Research Reports
DIR-D F CHIN BL (YINN): ETF Research Reports
DIRX-D RUSL BL3 (RUSL): ETF Research Reports
PRO-ULT QQQ (TQQQ): ETF Research Reports
DIR-D BRZL BL3X (BRZU): ETF Research Reports
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