5 Top-Performing Leveraged ETFs of Last Week
After a sell-off early last week — following the United States' expanded blacklisted Chinese technology companies over alleged human rights violations — global stocks rebounded strongly on trade optimism (read: Low-Beta ETFs to Tap Amid Stock Market Selloff).
This is especially true as the world’s two largest economies agreed to the first phase of a substantial trade deal wherein the United States suspended the tariff hike on $250 billion worth of Chinese goods slated to be effective next week and Beijing agreed to buy $40-$50 billion in U.S. farm products. Though the partial deal has not been signed yet, the move has eased concerns over a global slowdown.
Further, hopes of a Brexit deal added to the strength. The European Union and United Kingdom have agreed to intensive negotiations in the coming days.
This combination of news has 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 market remains bullish (read: A Quick Guide to 10 Most Popular Leveraged ETFs).
Below we have highlighted the five best leveraged equity ETFs of last week that could continue to be investors’ darlings.
Direxion Daily MSCI European Financials Bull 2X Shares EUFL – Up 10.8%
This ETF seeks to deliver two times the performance of the MSCI Europe Financials Index, charging investors 80 bps in annual fees. It has AUM of $6.7 billion and average daily volume of 1,000 shares.
Direxion Daily MSCI South Korea Bull 3X Shares KORU – Up 8.9%
This ETF offers 3x leveraged exposure to the South Korean equity market by tracking the MSCI Korea 25/50 Index. It charges an annual fee of 95 bps and trades in a light average daily volume of about 106,000 shares. The fund has accumulated AUM of $42.5 million.
MicroSectors U.S. Big Oil Index 3X Leveraged ETN NRGU – Up 8.3%
This ETN provides 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 $40.6 million in its asset base while trades in average daily volume of less than 500 shares. Expense ratio comes in at 0.95% (read: ETF Areas to Shine on 'Very Good' Trade Negotiation).
Direxion Daily China 3x Bull Shares ETF YINN – Up 8.1%
This product provides three times exposure to the FTSE China 50 Index, which consists of the 50 largest and most-liquid public Chinese companies currently trading on the Hong Kong Stock Exchange. It charges an annual fee of 95 bps and has AUM of $349.2 million. The fund trades in heavy volume of around 2.1 million shares.
Direxion Daily Retail Bull 3X Shares RETL – Up 7.7%
This ETF offers three times leveraged exposure to the S&P Retail Select Industry Index. The product has amassed about $13.7 million in its asset base, while charging 95 bps in fees per year. Volume is lower as it exchanges around 31,000 shares a day on average (read: Is Holiday Season Frenzy Fading for Retail ETFs?).
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 global 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 Retail Bull 3x Shares (RETL): ETF Research Reports
Direxion Daily FTSE China Bull 3X Shares (YINN): ETF Research Reports
Direxion Daily MSCI South Korea Bull 3x Shares (KORU): ETF Research Reports
MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU): ETF Research Reports
Direxion Daily MSCI European Financials Bull 2x Shares (EUFL): ETF Research Reports
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