Leveraged ETFs That Gained Double-Digits in July
The month of July was strong for the U.S. stock market with the S&P 500 re-claiming its 2800 level despite escalating trade worries. The rally was fueled by strong corporate earnings, accelerating economic growth, and the perception that American stocks are largely insulated from potential trade wars.
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With just one trading session left, the S&P is up 3.1% for the month, representing its largest increase since January, while the Dow Jones and Nasdaq Composite Index has gained 4.3% and 1.6%, respectively. Notably, Nasdaq has been in the spotlight throughout the month, scaling new highs on several occasions and then fell sharply in the last three sessions due to the tech sell-off triggered by weaker-than-expected earnings.
This frequent change in sentiments raised the appeal of leveraged ETFs as investors sought 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.
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In fact, many products provided outsized gains this month, despite a great deal of risk involved when compared with traditional products. While the 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 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.
Below we have highlighted five ETFs that generated double-digit returns and will continue to do so at least for the near term if the sentiments are intact.
Direxion Daily Healthcare Bull 3X Shares (NYSEARCA:CURE) – Up 15.4%
This fund creates three times (3x) leveraged long position in the Health Care Select Sector Index while charging 95 bps in fees a year. It has $145.1 million in AUM and trades in volumes of 178,000 shares on average.
ProShares UltraPro Financial Select Sector (NYSEARCA:FINU) – Up 15.4%
This product provides three times exposure to the daily performance of the S&P Financial Select Sector Index. It has been able to manage $54.8 million in its asset base and trades in a lower volume of about 32,000 shares per day on average. Expense ratio is 0.95%.