U.S. Markets open in 5 hrs 44 mins

7 Top-Performing Leveraged ETFs of 2017

Sweta Killa
Cigna (CI) clears a significant regulatory hurdle with regards to its proposed acquisition of Express Scripts.

This has been a bumper year for the equity markets across the globe as almost all of them have risen every month for the first time in the 30-year history of the MSCI AC World Index. While the U.S. market is in the midst of the second-longest bull run in history with the S&P 500 and the Dow Jones heading for their best years since 2013, international investing has stolen the show on political gridlock in Washington (read: 7 Biggest ETF Stories of 2017 to Continue in 2018).

Encouraging domestic and international fundamentals as well as better-than-expected corporate earnings are the major catalysts to the global rally. Technology surge and high-flying Internet stocks have also added to the strength. Further, tax reform and jump in oil prices propelled the stocks higher in the second half.

The bullishness has 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 (read: Leveraged ETFs: How Are They Built and What's Hot Now?).

Below, we have highlighted seven ETFs that crushed the market this year with stupendous returns. Moreover, these funds will continue to be investors’ darlings heading into the New Year if sentiments remain the same.

Direxion Daily Homebuilders & Supplies Bull 3X Shares NAIL – Up 263.6%

The housing sector has been in good shape thanks to lower mortgage rates, ongoing job creation, wage gains, and accelerating household formations. The fund creates a three times (3x) leveraged long position in the Dow Jones U.S. Select Home Construction Index. It charges an annual fee of 95 bps and trades in a light average daily volume of about 36,000 shares. The fund has accumulated AUM of $82.5 million.

Daily CSI China Internet Index Bull 2X Shares CWEB – Up 158.6%

This ETF is benefiting from the dual tailwinds of emerging market lead and a surge in the technology sector. Increasing euphoria on digitalization and e-commerce have made the space lucrative. 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 moderate average daily volume of about 62,000 shares. The fund has accumulated AUM of $101.6 million

Direxion Daily S&P Biotech Bull 3x Shares LABU – Up 157.5%

Encouraging industry trends and a favorable policy environment, including faster drug approval and deregulation, led to surge in 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 1.2 million shares. The fund has accumulated AUM of $434.1 million (read: Value Biotech ETFs to Buy Now).

Direxion Daily Semiconductor Bull 3x Shares SOXL – Up 147.6%

This ETF targets the semiconductor corner of the technology sector with 3x leveraged exposure to the PHLX Semiconductor Sector Index. Rapid adoption of cloud, Internet of Things, autonomous cars, gaming, wearables, VR headsets, drones, virtual reality devices, artificial intelligence and other advanced information technologies are fueling demand for chips and other semiconductor products. SOXL has amassed about $650.2 million in its asset base while charges 95 bps in fees per year. Volume is good as it exchanges nearly 508,000 shares a day on average.

Direxion Daily MSCI South Korea Bull 3X Shares KORU – Up 144.5%

Amid geopolitical tensions, the South Korean economy clocked its fastest growth in seven years in the last quarter, leading to a strong investment case for equities. As such, this fund offering 3x leveraged exposure to the South Korean equity market by tracking the MSCI Korea 25/50 Index, is in vogue. It charges an annual fee of 95 bps and trades in a light average daily volume of about 17,000 shares. The fund has accumulated AUM of $14 million.

Direxion Daily MSCI Emerging Markets Bull and Bear 3X Shares EDC – Up 130.8%

This ETF targets the emerging market with 3x leveraged exposure to the MSCI Emerging Markets Index. After many years of underperformance, low valuations have made emerging market products especially appealing to investors. EDC has amassed about $299.5 million in its asset base while charges 95 bps in fees per year from investors. Volume is moderate as it exchanges around 177,000 shares a day on average.

Direxion Daily Technology Bull 3x Shares TECL – Up 128%

This ETF targets the broad U.S. technology sector with 3x leveraged exposure to the Technology Select Sector Index. The outperformance is likely to continue heading into the New Year, given expectations of strong earnings, improved overseas industry demand, and innovative technologies. The fund has amassed about $515.8 million in its asset base while charges 95 bps in fees per year from investors. Volume is good as it exchanges around 146,000 shares a day on average (read: 5 Tech ETFs That Crushed FANG ETFs in 2017).

Bottom Line

While this strategy is highly beneficial for short-term traders, it could lead to huge losses compared with 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 with 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 a friend in this corner of the investing world.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>