5 Leveraged/Inverse ETFs Up 25% Plus at Halfway Q3

Sweta Killa

Though Wall Street was off to a solid start in the third quarter on hopes of monetary easing globally and trade optimism, it got caught in a nasty web of woes lately triggered by U.S.-China trade conflicts, low inflation, political unrest in Hong Kong as well as a plunge in Argentina's currency and stock markets.

These have reignited worries over the global slowdown and resulted in a steep fall in global yields. Notably, the U.S. Treasury yield curve temporarily inverted for the first time since June 2007 as 10-year yields broke below 2-year yields, signaling that the world’s biggest economy could be heading for a recession. As such, investors fled to safety toward gold and Treasuries (read: 5 Beaten Down ETFs & Stocks to Buy Now).

Against this backdrop, investors are rushing to leveraged or inverse leveraged ETFs to increase returns on quick market turns in a short span. These products either create a leveraged long/short position, an inverse long/short position or a leveraged inverse long/short position in the underlying index through the use of swaps, options, future contracts and other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a very short period of time provided the trend remains a friend.

However, these funds run the risk of 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 a shorter period (such as, weeks or months).

Still, we have highlighted five leveraged/inverse products that have gained more than 25% at halfway Q3 though these involve a great deal of risk when compared to traditional products. This trend might continue at least in the near term provided the sentiments remain the same (see: all Leveraged Equity ETFs here).

Direxion Daily Natural Gas Related Bear 3X Shares GASX – Up 80.2%

This product provides three times (3x) inverse exposure to the ISE-Revere Natural Gas Index. It has amassed $5.6 million in its asset base and trades in solid volume of 25,000 shares a day on average. The ETF charges 95 bps in fees per year.

Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 3X Shares DRIP – Up 60.2%

This fund seeks three times inverse exposure of the performance of the S&P Oil & Gas Exploration & Production Select Industry Index. DRIP has accumulated $39 million in its asset base and trades in solid volume of more than 748,000 shares a day on average. The fund charges 95 bps in annual fees (read: 6 Inverse ETFs That are Up More Than 30% in August So Far).

VelocityShares 3x Long Silver ETN USLV – Up 36.6%

This note provides long exposure to three times the daily performance of the S&P GSCI Silver Index ER plus a daily accrual equal to the return that could be earned on a notional capital reinvestment at the 3-month U.S. Treasury rate less the daily investor fee. It charges a higher fee of 1.65% and trades in average daily volume of 278,000 shares. The ETN has accumulated $305 million in its asset base.

Direxion Daily Junior Gold Miners Index Bull 3x Shares JNUG – Up 34.2%  

This product provides 3x exposure to the daily performance of the MVIS Global Junior Gold Miners Index. It charges 89 bps in annual fees and has accumulated $898.1 million in its asset base. Volume is heavy, exchanging about 2.7 million in shares per day on average (read: Gold ETF Inflows Hits 6-Year High: How to Go Long).

Direxion Daily 20+ Year Treasury Bull 3X Shares TMF – Up 28.5%

With AUM of $214.4 million, this ETF offers three times exposure to the ICE U.S. Treasury 20+ Year Bond Index. It charges 94 bps in annual fees and trades in average daily volume of 632,000 shares (read: Treasury ETFs Rally to New Highs on New Tariff Threats).

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, 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.

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