Top 5 Leveraged ETFs of Last Week

Wall Street crashed last week with the S&P 500, the Dow Jones, the Nasdaq Composite and the Russell 2000 losing about 2.5%, 1.8%, 4.9% and 2.4%, respectively. Rising rate worries led to this underperformance. The slide in markets was mainly triggered by the pain in growth stocks that were pandemic winners aided by low rates in 2020. The tech-heavy Nasdaq recorded its worst slump since October.

The investing scenario changed totally as we entered 2021 on vaccine distribution and hopes of a hefty fiscal stimulus in the United States under the Biden administration. This boosted reflationary trade, pushing long-term treasury yields higher and favoring value stocks over the growth ones.

The reason was the sudden jump in benchmark U.S. treasury yield, which topped 1.6% lately, marking the highest level since February 2020. No wonder, growth-oriented tech stocks — so far aided by low rates and carrying overvaluation concerns — started being dumped heavily by investors. High growth companies’ value depends hugely on expected earnings growth and as long-term yields rise, it lowers the present value of companies’ future earnings.

Against this backdrop, below we highlight a few inverse leveraged ETF areas that gained the most last week despite such a freefall in the market.

FTSE China Bear 3X Direxion (YANG) – Up 28.6%

The YANG looks to offer daily investment results, before fees and expenses, of 300% of the inverse (or opposite), of the performance of the FTSE China 50 Index. Global reflationary trade and speculation of policy tightening in China hurt the market last week.

Ultrashort MSCI Brazil Proshares (BZQ) – Up 22.5%

The fund looks to see daily investment results, before fees and expenses, which correspond to two times the inverse of the daily performance of the MSCI Brazil 25/50 Index. Brazilian stocks slumped last week on fear of growing government interference.

Brazil's benchmark Bovespa index tanked to start last week as oil major Petrobras plunged 21% following the ousting of its investor-backed chief executive. Apart from fear of growing red tape, higher inflationary concerns have hit the Latin American stock market.

Emerging Markets Bear 3X Direxion (EDZ) – Up 21.6%

Rising rates in the United States have dulled the possibilities of higher current income in the emerging markets (EM). Plus, the EM market was also not free from inflationary threats, which in turn pushed its own yields and hurt its stock markets.

S&P Biotech Bear 3X Direxion (LABD) – Up 21.6%

The underlying S&P Biotechnology Select Industry Index is designed to measure the performance of a sub-industry or group of sub-industries determined by the Global Industry Classification Standards (GICS).

Biotech is also a high-growth area and hence tends to underperform in a rising rate environment. Moreover, many of the biotech stocks surged in the health emergency last year and thus, carry ripe valuation at the current level.

Microsectors Fang+ -3X ETN (FNGD) – Up 19.3%

The underlying NYSE FANG+ Index includes 10 highly liquid stocks that represent a segment of the technology and consumer discretionary sectors consisting of highly-traded growth stocks of technology and tech-enabled companies.

Tech stocks including the FAANGs were hurt last week as the tech selloff took pace. Higher rates are negative for the technology sector. Moreover, overvaluation concerns amid the surge in pandemic-ridden 2020 also put tech stocks in a vulnerable spot (read: 6 Inverse ETFs Riding High on Tech Sell-Off This Week).

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