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6 Leveraged ETFs Soaring on Trump Rally

Sweta Killa

The surprising victory of Republican Donald Trump led to a huge rally in the U.S. stock market after a sharp sell-off in afterhours trading on the Election Day. In particular, the Dow Jones Industrial Average soared to record highs, logging in the biggest weekly gain of 5.4% in nearly five years. The two other major benchmarks – the S&P 500 and Nasdaq Composite – rose 3.8% (read: Trump Drives Dow to Record High: ETFs in Focus).

The gains were brought in by the belief that Trump’s proposals of expansive government spending, lesser financial regulation and increased prospects of tax cuts would boost economic growth and increase inflation. In his victory speech, Trump said that he seeks to double the pace of economic growth from the current 2%, create 25 million jobs over 10 years, and make the U.S. economy the strongest in the world.

In particular, financials, healthcare and industrials led the way higher. Trump seeks to dismantle the Dodd-Frank Act, which was enacted in the aftermath of the financial crisis to impose stricter regulations on banks. The healthcare sector, especially biotechnology and pharmaceutical, emerged as the clear winners as the impending Trump presidency has erased concerns over the limit to drug pricing, which was the highlight of Hillary Clinton’s campaign.

The industrial sector got boost from Trump’s promise to revive U.S. manufacturing and rehabilitate the country’s aging infrastructure by pouring billions of government dollars into highway, bridges, hospital and other construction projects. On the other side, precious metals and Mexican stocks were the hardest hit from Trump’s victory.

Given this, investors switched to leveraged ETFs to capitalize on Trump policies for big gains in a short span. Leveraged products either create a leveraged (i.e 2x or 3x) long or leveraged short position in the underlying index through the use of swaps, options, futures contracts and other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a very short period of time provided the trend remains a friend (see: all Leveraged Equity ETFs here).

However, these funds run the risk of huge losses compared to traditional funds in fluctuating or erratic markets. Further, their performance could vary significantly from the actual performance of their underlying index over a longer period when compared to a shorter period (such as weeks or months).

Below we have highlighted six ETFs that crushed the market post-election with abnormal returns in a short period. Moreover, these funds will continue to be investors’ darlings when Trump takes over.

Direxion Daily S&P Biotech Bull 3x Shares LABU

Since biotech was on a tear post-election, LABU has been a winner in the leveraged space. The fund creates a three times (3x) leveraged long position in the S&P Biotechnology Select Industry Index. It charges an annual fee of 95 bps and trades in huge average daily volume of more than 3.7 million shares. The fund has accumulated AUM of $378.6 million and surged about 62.6% over the past five days (read: ETFs & Stocks That Topped or Flopped After Trump Won).

Direxion Daily Regional Banks Bull 3x Shares DPST

This ETF targets the regional bank corner of the financial sector with three times leveraged exposure to the Solactive Regional Bank Index. It has amassed about $2.5 million in its asset base while charges 95 bps in fees per year from investors. Volume is paltry as it exchanges less than 2,000 shares a day on average. The fund soared 50.6% in the same time frame.

Direxion Daily Gold Miners Index Bear 3x Shares DUST

Acting as a leveraged play on gold, gold miners tend to experience more losses than their bullion cousins in a declining metal market. DUST seeks to deliver three times the inverse daily performance of the NYSE Arca Gold Miners Index. The fund has amassed $392.6 million in its asset base and trades in average volume of more than 8.3 million shares. It charges investors 95 bps in annual fees and expenses. The ETF gained 38% over the past five days.

ProShares UltraPro Financial Select Sector FINU

This product provides three times exposure to the daily performance of the S&P Financial Select Sector Index. It has been able to manage $10.3 million in its asset base and trades in a paltry volume of about 2,000 shares per day on average. Expense ratio is 0.95%. FINU was up 36% over the past five days.

ProShares UltraShort MSCI Mexico Capped IMI ETF SMK

This fund targets the Mexican stock market and offers two times (2x) the inverse of the daily performance of the MSCI Mexico IMI 25/50 Index. It has accumulated $1.5 million in its asset base and charges 95 bps in annual fees. Volume is paltry exchanging about 2,000 shares a day. The ETF gained 29.7% in the same time frame (read: The Trump Effect: 8 Must-See ETF Charts).

Direxion Daily Small Cap Bull 3x Shares TNA

This product provides a triple leveraged play to the small cap Russell 2000 Index, charging 95 bps in fees and expenses. It has been able to manage $767 million in its asset base and sees solid volume of 4 million shares a day on average. TNA has added 28.5% in the same time frame.

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