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9 Best-Performing Leveraged ETFs of 1H19

Sweta Killa

Braving all the woes and uncertainties including trade war jitters, global growth concerns, recession fears, government shutdown, geopolitical tension and weak corporate earnings, the Wall Street logged in the strongest performance in more than a decade for the first half of the year. The S&P 500 jumped 17% - its best first-half performance since 1997 – while the Dow climbed 14% - its best show since 1999. Meanwhile, the Nasdaq Composite Index skyrocketed more than 20%, recording its best first six months of the year since 2003.

The rally was powered by hopes of easing money policies as the Fed is ready to cut interest rates as soon as this month if needed. Lower interest rates will keep 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 add to the strength (read: S&P 500 Hits New High: 10 Top-Performing ETFs YTD).

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 nine leveraged equity ETFs that piled up more than 60% returns in the first half. These funds will continue to be investors’ darlings provided the sentiments remain the same.

Direxion Daily Homebuilders & Supplies Bull 3X Shares NAIL - Up 91.9%

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 62,000 shares. The fund has accumulated $41.4 million in its asset base (read: Tough Time for Homebuilding ETFs Despite Fed's Dovishness?).

Direxion Daily Technology Bull 3x Shares TECL – Up 87.2%

This ETF targets the technology sector with three times exposure to the Technology Select Sector Index. It has amassed about $729.6 million in its asset base and charges 95 bps in fees per year. Volume is good as it exchanges around 314,000 shares a day on average.

Direxion Daily Aerospace & Defense Bull 3X Shares DFEN – Up 79.7%

The fund creates three times leveraged long position in the Dow Jones U.S. Select Aerospace & Defense Index. It charges an annual fee of 95 bps and trades in good average daily volume of about 67,000 shares. The fund has accumulated AUM of $58.6 million.

Direxion Daily Semiconductor Bull 3x Shares SOXL – Up 78.5%

This ETF targets the semiconductor corner of the technology sector with 3x leveraged exposure to the PHLX Semiconductor Sector Index. It has amassed about $675.1 million in its asset base while charging 94 bps in fees per year. Volume is good as it exchanges nearly 985,000 shares a day on average (read: Bulls Roar Again in June: Leveraged ETFs in Focus).

Daily Robotics, Artificial Intelligence & Automation Index Bull 3X Shares UBOT – Up 21.8%

This product seeks to deliver three times the daily performance of the Indxx Global Robotics and Artificial Intelligence Thematic Index. It has accumulated $20.8 million in its asset base and trades in average daily volume of 136,000 shares. The ETF charges 95 bps in annual fees.

Direxion Daily Consumer Discretionary Bull 3X Shares WANT – Up 69.7%

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 $4.8 million and average daily volume of 6,000 shares.

Direxion Daily Industrials Bull 3X Shares DUSL – Up 69%

This fund offers three times exposure to the daily performance of the Industrial Select Sector Index. It has accumulated $4.9 million in its asset base. Average daily volume is paltry at around 8,000 shares. Expense ratio comes in at 0.95% (read: 5 Cyclical ETFs & Stocks Top in June).

ProShares UltraPro QQQ TQQQ – Up 66.8%

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 $3.9 billion and average daily volume of 18.3 million shares. TQQQ charges 95 bps in fees per year.

Direxion Daily Financial Bull 3x Shares FAS – Up 66%

This ETF provides three times exposure to the performance of the Russell 1000 Financial Services Index. The fund has amassed nearly $1.4 billion in its asset base and charges 95 bps in annual fees. It trades in average daily volume of nearly 1.3 million shares (read: 5 Sector ETFs That Beat the Market in the First Half).

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.

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