The month of July was marked with immense stock market volatility as resurging coronavirus cases, rising U.S.-China tensions and weak earnings expectations have made investors jittery. However, positive development in a COVID-19 vaccine, trillions of dollars injected into the economy by central banks across the globe as well as improving business and industrial activities after reopening of the economy have driven the stock market.
Meanwhile, the political and economic turmoil has raised the appeal for the precious metals, especially gold and silver, as these act as safe havens. Most notably, gold has skyrocketed to an all-time high nearing $2,000 per ounce while silver has jumped to the highest level of nearly $25 in seven years. The weakness in the U.S. dollar against major global currencies also raised the metal’s attractiveness, as it does not pay interest like fixed-income assets (read: Precious Metal ETFs Shines in July).
This 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 trend remains positive.
Below we highlighted six leveraged equity ETFs that have gained more than 25% in July. These funds will continue to be investors’ darlings provided the sentiments remain bullish.
ProShares Ultra Silver AGQ – Up 73.3%
This ETF seeks to deliver two times the daily performance of the Bloomberg Silver Subindex. It has amassed $537.8 million and charges investors 95 bps in annual fees. The fund trades in average daily volume of 867,000 shares.
Direxion Daily Homebuilders & Supplies Bull 3X Shares NAIL — Up 70.7%
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 99 bps and trades in a good average daily volume of about 2 million shares. The fund has accumulated $369.1 million in its asset base.
Direxion Daily Junior Gold Miners Index Bull 2x Shares JNUG – Up 52.6%
This product provides 2X exposure to the daily performance of the MVIS Global Junior Gold Miners Index. It charges 89 bps in annual fees and has accumulated $877.8 million in its asset base. Volume is heavy, exchanging about 2 million in shares per day on average (read: How to Bet on the Gold Frenzy With ETFs & Stocks).
Direxion Daily Retail Bull 3X Shares RETL – Up 34.8%
This ETF offers three times leveraged exposure to the S&P Retail Select Industry Index. The product has amassed about $28.2 million in its asset base, while charging 99 bps in fees per year. Its volume is lower as it exchanges around 21,000 shares a day on average.
BMO REX MicroSectors FANG+ Index 3X Leveraged ETN FNGU – Up 27.9%
This note seeks to offer three times leveraged exposure to the NYSE FANG Index, charging 95 bps in annual fees. The ETN has accumulated $395 million in its asset base and trades in average daily volume of 449,000 shares (read: Should You Buy FAANG ETFs Ahead of Q2 Earnings?).
Direxion Daily Transportation Bull 3X Shares TPOR – Up 25.3%
TPOR targets the transportation sector and seeks to deliver thrice the daily performance of the Dow Jones Transportation Average. The product has AUM of $29.2 million and charges 95 bps in fees and expenses. It trades in lower volumes of about 317,000 shares per day.
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 funds’ 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).
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