Wall Street recorded the biggest weekly gain last week since 1974, with the three major indices recovering about half of their losses that were racked up in late March on heightening coronavirus fears. Notably, the S&P 500 and Dow Jones jumped more than 12% last week, while Nasdaq gained 10.6%, marking the best week since 2008 (read: S&P 500 ETFs Face Off: SPY (NYSE:SPY) vs. IVV).
This strong performance was driven by the signs of a slowdown in the number of hospitalizations and intensive-care admissions in New York and Europe. Per the new report from the University of Washington's Institute for Health Metrics and Evaluation, the estimated death toll from the coronavirus pandemic in the United States has been lowered by 26% from 82,000 to 60,000 over the next four months. The recent slowdown has sparked optimism among investors over the reopening of the economy soon.
Additionally, the large fiscal and monetary stimulus has added to the strength of the stocks. In its latest move, the Fed rolled out a massive $2.3-trillion program last week to aid local governments and businesses impacted by the coronavirus pandemic.
All these developments have spurred huge demand for leveraged ETFs as investors seek to register big gains in a shorter span of time. Leveraged funds provide multiple exposures (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. Owing to their compounding impact, investors can enjoy higher returns in a very short period, provided the market remains bullish.
Below we have highlighted some leveraged equity ETFs that gained more than 50% last week and will continue to do so if the market sentiment remains positive.
Direxion Daily Homebuilders & Supplies Bull 3X Shares NAIL — Up 91.9%
NAIL provides leveraged exposure to homebuilders and creates a three-time (3x) long position on the Dow Jones U.S. Select Home Construction Index. It charges an annual fee of 95 basis points (bps) and trades in a moderate average daily volume of about 288,000 shares. The fund has accumulated $81 million in its asset base (read: 5 Sector ETFs at the Forefront of Wall Street Rally).
Direxion Daily Retail Bull 3X Shares RETL – Up 72.4%
This ETF offers a three-time leveraged exposure to the S&P Retail Select Industry Index. The product has amassed about $6.5 million in its asset base, while charging 95 bps in fees per year. Its volume is lower as it exchanges around 43,000 shares a day on average.
Direxion Daily MSCI Real Estate Bull 3X Shares DRN — Up 68.4%
This product seeks to deliver three times the performance of the MSCI US IMI (LON:IMI) Real Estate 25/50 Index. It has an AUM of $34.4 million and average daily volume of around 116,000 shares. The ETF charges 95 bps in annual fees (read: How to Go Long on Rate Sensitive Sectors With ETFs).
Direxion Daily Regional Banks Bull 3x Shares DPST – Up 67.2%
This fund seeks to deliver three times the returns of the S&P Regional Banks Select Industry Index, charging 95 bps in fees per year. It has accumulated $23.9 million in its asset base and trades in average daily volume of around 125,000 shares.
MicroSectors U.S. Big Banks Index 3X Leveraged ETN BNKU – Up 62.3%
BNKU seeks to offer a three-time exposure to the Solactive MicroSectors U.S. Big Banks Index. The ETN has accumulated $7.6 million in its asset base. It charges 95 bps in annual fees and trades in average daily volume of under 1,000 shares.
Daily S&P 500 High Beta Bull 3X Shares HIBL – Up 55.2%
This ETF offers a three-time exposure to the performance of the S&P 500 High Beta Index. It has gathered $7.6 million in AUM and trades in average daily volume of 67,000 shares. The fund charges 95 bps in fees per year from investors.
Direxion Daily Financial Bull 3x Shares FAS – Up 53.7%
This ETF provides three times exposure to the performance of the Russell 1000 Financial Services Index. The fund has amassed nearly $1 billion in its asset base and charges 95 bps in annual fees. It trades in average daily volume of nearly 2.1 million shares.
Direxion Daily Mid Cap Bull 3x Shares MIDU – Up 50.6%
This ETF provides three times the return of the daily performance of the S&P MidCap 400 Index and exchanges around 84,000 shares in hand on average per day. The fund has an AUM of $25.1 million, and charges 95 bps in fees and expenses (read: Are Small-Cap ETFs in Trouble?).
Direxion Daily S&P Oil & Gas Exploration & Production Bull 2x Shares GUSH – Up 50.4%
This fund offers a two-time exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It has accumulated $185.7 million in its asset base and has a solid average daily volume of around 642,000 shares. The expense ratio comes in at 0.95%.
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 might 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).
Nevertheless, any of the above products could still make an interesting choice for ETF investors who are bullish on equities for the near term. 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 part of the investing world.
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Direxion Daily Regional Banks Bull 3X Shares (DPST): ETF Research Reports
Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X Shares (GUSH): ETF Research Reports
Direxion Daily Mid Cap Bull 3X Shares (MIDU): ETF Research Reports
Direxion Daily Retail Bull 3x Shares (RETL): ETF Research Reports
Direxion Daily Financial Bull 3X Shares (FAS): ETF Research Reports
Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL): ETF Research Reports
Direxion Daily MSCI Real Estate Bull 3x Shares (DRN): ETF Research Reports
MicroSectors U.S. Big Banks Index 3X Leveraged ETN (BNKU): ETF Research Reports
Direxion Daily S&P 500 High Beta Bull 3X Shares (HIBL): ETF Research Reports
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