8 Leveraged ETFs That Soared At Least 20% to Start 2018
Zacks Investment Research
Updated
The stock market across the globe continues to show strong complacency this year amid record levels of corporate debt and a flattening yield curve. The MSCI World Index registered its best start to a year in eight years while the Wall Street logged in its best start in more than a decade.
8 Leveraged ETFs That Soared At Least 20% to Start 2018
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The combination of factors including strong corporate earnings, solid momentum in the global economy, booming trade, jump in oil prices and weak dollar are powering the global rally. Trump’s tax overhaul and a spending spree are boosting investors’ confidence in the world’s largest economy while China, the world’s second largest economy, is holding up well. Meanwhile, Eurozone has been growing at the fastest pace in a decade.
Improving growth has prompted the central banks outside the United States to follow the Fed in policy tightening. The prospect to end the cheap money era is fueling growth in the global stocks.
All these 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 a friend.
Below, we have highlighted eight ETFs that have piled up abnormal returns to start the year. These funds will continue to be investors’ darlings provided the sentiments remain the same.
Direxion Daily Russia Bull 3X Shares (NYSEARCA:RUSL) – Up 32.2%
Russian stocks have been on a smooth ride buoyed by a rise in oil prices. The news of the buyback plan from Russian oil producer Lukoil also added to the optimism. The ETF creates a three times (3x or 300%) long position in the MVIS Russia Index. It has amassed about $174.2 million in its asset base while charges 95 bps in fees per year from investors. Volume is moderate as it exchanges around 113,000 shares a day on average.
Direxion Daily China Bull 3x Shares (NYSEARCA:YINN) – Up 25.1%
Chinese stocks also had a strong start to 2018 driven by a tech surge, increased liquidity measures by the central bank and better-than-expected China Caixin manufacturing PMI, which showed a December reading of 51.5, up from 50.8 in the previous month. YINN targets the Chinese stock market and offers three times the daily performance of the FTSE China 50 Index. It has accumulated $293.4 million in its asset base and charges 95 bps in annual fees. The ETF trades in average daily volume of 691,000 shares.
Direxion Daily Energy Bull & 3x Shares (NYSEARCA:ERX) – Up 22.5%
The energy sector has been stealing the show in the U.S. equity world given that oil price is on a fantastic run thanks to geopolitical uncertainty, tightening supply and soaring demand. This 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 $522.4 million and average trading volume of around 1.8 million shares (read: How to Bet on Energy Stocks with ETFs for Quick Returns).
Direxion Daily Transportation Bull 3X Shares (NYSEARCA:TPOR) – Up 21.9%
This ETF targets the transportation sector and is riding high on a robust economy, which will increase the movement of goods and services resulting in increased volume for the sector. It seeks to deliver thrice the daily performance of the Dow Jones Transportation Average. The product has AUM of $8.4 million and charges 95 bps in fees and expenses. It trades in lower volumes of about 10,000 shares per day.
Direxion Daily Natural Gas Related Bull 3x Shares (NYSEARCA:GASL) – Up 21.9%
Natural gas price is on the rise as demand for heating has shot up on a cold snap`. This product seeks to deliver thrice the daily performance of the ISE Revere Natural Gas Index, which derives a substantial portion of its revenues from the exploration and production of natural gas. The fund has amassed $43.6 million in AUM and trades in a good average daily volume of 161,000 shares. Expense ratio comes in at 0.95%.
Direxion Daily Brazil Bull 3x Shares (NYSEARCA:BRZU) – Up 21.4%
Brazilian stocks are gaining on turnaround in the economy, which has started to show signs of life on lower interest rates and increased investments. The ETF creates a three times long position in the MSCI Brazil 25/50 Index. It has amassed about $166.6 million in its asset base while charges 95 bps in fees per year from investors. Volume is solid as it exchanges around 558,000 shares a day on average.
Direxion Daily S&P Oil & Gas Exploration & Production Bull 3x Shares (NYSEARCA:GUSH) – Up 20.5%
This fund is also powered by higher oil prices and offers triple exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It has accumulated $133.7 million in its asset base and average daily volume is solid at around 1.2 million shares. Expense ratio comes in at 0.95%.
Banks are enjoying the dual tailwinds of rising rates and lower tax cuts. This fund seeks to deliver three times the return of the S&P Regional Banks Select Industry Index, charging 95 bps in fees per year. DPST has accumulated $39.1 million in its asset base and trades in paltry volume of around 30,000 shares a day on average.
Bottom Line on Leveraged ETFs
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, their performances 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.
Still, for ETF investors who are bullish on 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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