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A Leveraged ETF To Consider In August

ETF Professor

The summer months have a reputation for dullness on Wall Street, and this summer has been no exception (except for some action yesterday afternoon). Volatility is at a 20-year low.


August is the heart of the supposed summer doldrums, but there are still opportunities for aggressive, risk-tolerant traders to seek out more action in August with leveraged exchange traded funds (ETFs).


A good place to start could be with the Direxion Daily MSCI Brazil Bull 3X Shares (NYSEARCA:BRZU). BRZU surprisingly closed slightly lower Thursday after Brazil's central bank slashed its benchmark lending rate, the selic rate, to 9.25 percent. That is good for Brazil's lowest benchmark interest rate since 2013.


Even with Thursday's modest loss, BRZU is higher by nearly 28 percent since the start of July, making it the best performer among Direxion's stable of leveraged bullish ETFs. BRZU attempts to deliver triple the daily returns of the MSCI Brazil 25/50 Index, according to Direxion. Some of BRZU's top holdings include Itau Unibanco Holding SA (ADR) (NYSE: ITUB), Banco Bradesco SA (ADR) (NYSE: BBD) and Petroleo Brasileiro SA Petrobras (ADR) (NYSE: PBR).


August Could Be Fun For BRZU

Before delving into why August could be eventful for BRZU, it should be noted that is not an endorsement of holding BRZU for the entire month. That strategy is potentially ruinous as no leveraged ETF is intended to be a long-term instrument to be held for weeks or months.


Like any leveraged ETF, BRZU is best used as an intraday short-term trade. That is particularly true with BRZU because Brazil is one of the most volatile emerging markets and the country's recent spate of political volatility means stocks there can turn on a dime—and not always in favor of the bulls.


With those disclaimers in mind, Brazil's central bank meets again in late August and with a clear easing cycle underway, BRZU could be worth considering in late August as markets price in the chances of another Brazilian rate cut.



BRZU is also closing in on its simple 200-day moving average, a technical indicator the ETF has not closed above in more than two months. As of Thursday's close, BRZU resides 8.8 percent below its 200-day line, a gap this ETF could easily close in just one or two trading days.


Over the past 30 days, BRZU has averaged daily outflows of about $1.5 million, according to Direxion data, but that is not necessarily a negative sign. It could just be profit-taking on behalf of traders that used the ETF the right way: as a short-term trade. 


Related Links:


Traders Return To These Gold ETFs. 


Important Reminders About Leveraged ETFs. 

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