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6 Best Performing Leveraged ETFs of Q1

Sweta Killa

The U.S. stock market has shown an impressive rebound from the last quarter’s slump on optimism over U.S.-China trade deal despite global growth concerns and the Brexit issue. The Federal Reserve also played an important role in driving market sentiments.

The central bank has signaled no further interest rate hikes this year due to signs of softness in the U.S. economy. Lower interest rates will keep the borrowing cost down, thereby resulting in higher consumer spending and rise in economic activities. Additionally, recovery in U.S. housing market and rising oil price added to the strength.

Amid the global market rally, China stocks are worth noting as the major indices raged to a bull market in first-quarter 2019 thanks to trade deal talks and MSCI’s move to increase the weighting of China stocks on its index (read: China Enters Bull Market, Outperforms in February: 5 Top ETFs).

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 positive.

Below we have highlighted six leveraged equity ETFs that have piled up more than 50% returns in the first quarter. These funds will continue to be investors’ darlings provided the sentiments remain the same.

Direxion Daily S&P Biotech Bull 3x Shares LABU – Up 66%

This fund creates a 3x leveraged long position in the S&P Biotechnology Select Industry Index. It charges an annual fee of 95 basis points (bps) and trades in a heavy average daily volume of about 3.7 million shares. The fund has AUM of $666.8 million (read: Leveraged ETFs That Soared More Than 50% in February).

Direxion Daily Homebuilders & Supplies Bull 3X Shares NAIL - Up 64%

NAIL provides leveraged exposure to homebuilders and creates a three times long position in the Dow Jones U.S. Select Home Construction Index. It charges an annual fee of 95 bps and trades in lower average daily volume of about 66,000 shares. The fund has accumulated $33.3 million in its asset base (read: Homebuilder ETFs Shining Ahead of Spring Selling Season).

Direxion Daily Semiconductor Bull 3x Shares SOXL – Up 59%

This ETF targets the semiconductor corner of the technology sector with 3x leveraged exposure to the PHLX Semiconductor Sector Index. It has amassed about $573.3 million in its asset base while charging 94 bps in fees per year. Volume is good as it exchanges nearly 936,000 shares a day on average (read: Will Semiconductor ETFs' Best Start to a Year Last Long?).

Direxion Daily Technology Bull 3x Shares TECL – Up 58%

This ETF targets the technology sector with three times exposure to the Technology Select Sector Index. It has amassed about $670.9 million in its asset base and charges 95 bps in fees per year. Volume is good as it exchanges more than 367,000 shares a day on average (read: 10 Best Leveraged ETFs of the 10-Year Bull Market).

Daily Robotics, Artificial Intelligence & Automation Index Bull 3X Shares UBOT – Up 57%

This product seeks to deliver three times the daily performance of the Indxx Global Robotics and Artificial Intelligence Thematic Index. It has accumulated $17.1 million in its asset base and trades in average daily volume of 65,000 shares. The ETF charges 95 bps in annual fees.

Direxion Daily CSI 300 China A Share Bull 2X Shares CHAU – Up 56%

This product targets the Chinese equity market and offers two times the exposure to the CSI 300 Index, charging investors 95 bps in annual fees. It has AUM of 112.8143.7 million and average daily volume of 415,000 shares.

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 ETFs’ 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.