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Leveraged ETFs That Have Gained More Than 80% at Halfway Q2

·6 min read

After a brutal first quarter, U.S. stocks strongly rebounded on an unprecedented fiscal and monetary stimulus, progress in the development of a coronavirus vaccine or treatment as well as optimism over the reopening of the economy.

The strong trend is likely to continue in the coming months. The easing of restrictions in some businesses and parts of U.S. states has started to propel demand and is likely to revive economic growth. The latest data for U.S. consumer sentiment shows that the University of Michigan’s consumer sentiment index rose to 73.7 in early May from 71.8 in April as U.S. fiscal stimulus measures “improved consumers’ finances and widespread price discounting boosted their buying attitudes.”

Additionally, Federal Reserve Chairman Jerome Powell said the central bank still has plenty of ammunition to rescue the economy from a deep slowdown, indicating a potential recovery in the second half of the year. The Fed would expand existing lending programs or start new ones if required. Since mid-March, the Fed has slashed interest rates to near zero and unveiled nine emergency lending programs, supporting corporate and municipal bond markets (read: How to Trade Powell's Comments on Economy With ETFs).

The bullishness has led to 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 highlighted some leveraged equity ETFs that piled up more than 80% returns halfway through the second quarter. These funds will continue to be investors’ darlings provided the sentiments remain bullish.

Direxion Daily S&P Oil & Gas Exploration & Production Bull 2x Shares GUSH – Up 170.1%

This fund offers a two times exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It has accumulated $374.8 million in its asset base and has a solid average daily volume of around 4.4 million shares. The expense ratio comes in at 0.95%.

Direxion Daily S&P Biotech Bull 3x Shares LABU – Up 130.4%

This fund creates a 3x leveraged long position on 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 2.5 million shares. The fund has AUM of $496.5 million (read: Moderna Soars: Biotech ETFs in Focus).

Direxion Daily Homebuilders & Supplies Bull 3X Shares NAIL — Up 111.8%

NAIL provides leveraged exposure to homebuilders and creates three times long position on the Dow Jones U.S. Select Home Construction Index. It charges an annual fee of 95 bps and trades in a good average daily volume of about 682,000 shares. The fund has accumulated $212.9 million in its asset base.

MicroSectors U.S. Big Oil Index 3X Leveraged ETN NRGU – Up 101.5%

This ETN provides three times levered exposure to the Solactive MicroSectors U.S. Big Oil Index, which is equal-dollar weighted and provides exposure to the 10 largest U.S. energy and oil companies. It has been able to manage $65 million in its asset base while trades in average daily volume of 784,000 shares. Expense ratio comes in at 0.95% (read: Is the Worst Over for Oil ETFs?)

Direxion Daily Retail Bull 3X Shares RETL – Up 93.7%

This ETF offers three times leveraged exposure to the S&P Retail Select Industry Index. The product has amassed about $17.1 million in its asset base, while charging 95 bps in fees per year. Its volume is lower as it exchanges around 9,000 shares a day on average.

Daily Dow Jones Internet Bull 3X Shares WEBL – Up 87.7%

This fund provides three times leveraged play on the Internet corner of the broad technology sector by tracking the Dow Jones Internet Composite Index. It debuted in the space in November and has attracted $17.7 million in its asset base since then. The product charges 95 bps in annual fees and sees average daily volume of 33,000 shares (read: Tech Sector Outperforming This Year: Best ETFs, Stocks).

BMO REX MicroSectors FANG+ Index 3X Leveraged ETN FNGU – Up 87.6%

This note seeks to offer three times leveraged exposure to the NYSE FANG Index, charging 95 bps in annual fees. The ETN has accumulated $238.3 million in its asset base and trades in average daily volume of 359,000 shares.

Direxion Daily Energy Bull & 3x Shares ERX – Up 87.4%

The fund creates a triple leveraged long position in the Energy Select Sector Index while charging 95 bps in fees a year. It is a popular and liquid option in the energy leveraged space, with AUM of $379.3 million and average trading volume of around 8.1 million shares.

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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Direxion Daily SP Biotech Bull 3X Shares (LABU): ETF Research Reports
 
Direxion Daily SP Oil Gas Exp. Prod. Bull 2X Shares (GUSH): ETF Research Reports
 
Direxion Daily Energy Bull 2X Shares (ERX): ETF Research Reports
 
Direxion Daily Retail Bull 3x Shares (RETL): ETF Research Reports
 
Direxion Daily Homebuilders Supplies Bull 3X Shares (NAIL): ETF Research Reports
 
MicroSectors FANG Index 3X Leveraged ETN (FNGU): ETF Research Reports
 
MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU): ETF Research Reports
 
Direxion Daily Dow Jones Internet Bull 3X Shares (WEBL): ETF Research Reports
 
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