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Leveraged ETFs: How Do They Work and What's Hot Now?

EOG Resources' (EOG) strong inventory of premium drilling wells should back impressive production growth.
EOG Resources' (EOG) strong inventory of premium drilling wells should back impressive production growth.
Neena Mishra

In this episode of ETF Spotlight, I talked with Sylvia Jablonski, Managing Director at Direxion Investments.

Direxion is one of the largest issuers of leveraged and inverse ETFs. These ETFs are among the most misunderstood products in the ETF world.

I think leveraged ETFs are complex but very interesting products but they are appropriate only for sophisticated investors who understand them properly.

First off, Sylvia explained how these ETFs work and achieve the exposure using derivatives, typically swaps and futures.

She then walked us through the daily rebalancing as these ETFs are designed to achieve their stated performance goal on a daily basis, using the Direxion Daily S&P 500 Bull 3X Shares SPXL as an example.

Over a period longer than one day, their performance can differ significantly from their stated daily performance objectives.

Compounding can have both favorable and adverse effects on the returns. These products perform best in trending markets with low volatility.

We then discussed the benefits of these products and how investors should use these strategies.

Direxion also has a suite of lightly leveraged ETFs that are more suitable for investors who do not want to monitor their positions daily. These products can be used by investors to achieve outperformance over time, while maintaining their existing asset allocation strategies.

We also took a look at some leveraged and inverse ETFs that are seeing more interest of late.

The Direxion Daily Technology Bull 3X Shares TECL which provides three times (3x) leveraged exposure to the Technology Select Sector Index has been quite popular this year. We discussed whether tech stocks could continue to outperform.

Some other areas that have seen higher interest recently include the Direxion Daily Healthcare Bull 3x Shares CURE and the Direxion Daily Retail Bull 3x Shares RETL.

We also talked about the Direxion Daily Gold Miners Index Bear 3x Shares DUST and the Direxion Daily Gold Miners Index Bull 3x Shares NUGT that have seen outsized moves this year.

Check out the podcast for details. You’ll definitely feel more comfortable with leveraged and inverse ETFs after listening to this episode.

Please visit direxioninvestments.comif you want to learn more about these products.

Make sure to be on the lookout for the next edition of the ETF Spotlight! If you have any comments or questions, please email podcast@zacks.com.

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DIR-TEC BULL3X (TECL): ETF Research Reports
DIR-D GM BL 3X (NUGT): ETF Research Reports
DIRX-LC BULL 3X (SPXL): ETF Research Reports
DIR-D GM BR 3X (DUST): ETF Research Reports
DIR-D RTL BL 3X (RETL): ETF Research Reports
DIRX-D HC BL3X (CURE): ETF Research Reports
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Zacks Investment Research