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5 Leveraged ETFs That Gained Double-Digits Halfway July

Sweta Killa

After logging in the strongest first-half performance in more than a decade, Wall Street continued its winning streak to start the second half by making history. This is especially true as the S&P 500 hit the 3,000 milestone and the Dow Jones breached 27,0000 for the first time ever (read: 10 Stocks of S&P 500 ETF Up More Than 60% This Year).

The bulls have become much more powerful lately on hopes of easing money policies as the Fed intends to cut interest rates as soon as this month. Per CME Group’s FedWatch tool, market expectations for lower rates in July currently stand at 100%. Lower interest rates will keep borrowing cost down, thereby resulting in higher consumer spending and rise in economic activities.

The historic highs came amid lingering trade war and global growth concerns. All these fundamentals have resulted in 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 a friend.

Below we have highlighted five ETFs that have gained in double digits to start July. These funds will continue to be investors’ darlings provided the sentiments remain the same (see: all Leveraged Equity ETFs here).

BMO REX MicroSectors FANG+ Index 3X Leveraged ETN FNGU

FANG and the big tech stocks have been leading the way higher on a trade truce between the United States and China. This is because the tech titans have large exposure to China. As such, FNGU, which seeks to offer three times leveraged exposure to the NYSE FANG Index, rallied 15.8%. The ETN has accumulated $132.7 million in its asset base. It charges 95 bps in annual fees and trades in average daily volume of 170,000 shares.

Direxion Daily Brazil Bull 3x Shares BRZU

Brazilian stocks skyrocketed to new highs on prospects of rate cuts at home and abroad. Additionally, rising oil price and optimism over domestic economic reforms boosted investor sentiment. As such, BRZU, which creates a three times long position in the MSCI Brazil 25/50 Index, is up 14.9% so far this month. It has amassed about $377.7 million in its asset base, while charging 95 bps in fees per year from investors. Volume is solid as it exchanges around 2.6 million shares a day on average (read: 6 Top Leveraged ETFs of Last Week).

Direxion Daily Consumer Discretionary Bull 3X Shares WANT

The consumer discretionary sector has been riding high buoyed by Amazon’s Prime Day, which is now being touted as "Summer's Black Friday" by many analysts. Along with Amazon (AMZN), other retailers are splurging on this event, pushing WANT higher by 13.6% so far this month. This ETF seeks to offer three times exposure to the Consumer Discretionary Select Sector Index, charging 95 bps in annual fees. It has AUM of $5.4 million and average daily volume of 6,000 shares (read: Consumer ETFs Win on Prime Day Becoming "Summer's Black Friday").

Direxion Daily Communication Services Index Bull 3X Shares TAWK

This ETF seeks to deliver three times the performance of the Communication Services Select Sector Index, charging investors 95 bps in annual fees. It has AUM of $5.6 billion and average daily volume of 8,000 shares. The ETF is up 12.6% so far this month.

Direxion Daily Technology Bull 3x Shares TECL

This ETF targets the broad technology sector with three times exposure to the Technology Select Sector Index. It has amassed about $785.6 million in its asset base and charges 95 bps in fees per year. Volume is good as it exchanges around 290,000 shares a day on average. The ETF is up 12.5% in the same time frame (read: 9 Best-Performing Leveraged ETFs of 1H19).

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 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.

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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