9-Year Bull To Roar High: Bet On The Best Leveraged ETFs

As the U.S. bull market turned nine on Mar 9, major bourses saw tremendous upside suggesting that the market still has legs. The S&P 500 index has quadrupled from the bear-market bottom of 676.53 hit on Mar 9, 2009 — representing the second-longest and second-strongest bull market in history. The trend is likely to continue into the tenth year as well.

This is especially true as strong corporate earnings and optimism surrounding Trump’s pro-growth policies are likely to be the biggest tailwinds for the stock market this year. Additionally, pick-up in growth in developed and developing economies, robust job gains, growing wages, slowly rising inflation, increasing consumer spending, recovering housing market and record level of consumer confidence are likely to boost the longevity of the bull market.

However, a host of challenges like Trump’s protectionist stance, inflation threats, rising bond yields, faster-than-expected rate hikes, geopolitical tensions and Washington turmoil might keep crossing the bulls in the months ahead. Notably, worries surrounding inflation and rising bond yields have pushed stocks into the fastest-ever correction territory (a decline of more than 10% from the last peak scaled in late January) in early February (read: Inverse Equity ETFs to Bet on Historic Selloff).

Though volatility will continue, we believe the bull market has higher chances of riding higher. As a result, investors should bet on the best performing leveraged ETFs of the bull market. 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. These have piled up abnormal returns during the nine-year period.

Below, we have highlighted five ETFs that could see more gains if the market continues to trend upward (read: Leveraged ETFs: How Are They Built and What's Hot Now?).

Direxion Daily Technology Bull 3x Shares TECL – Up 6517%

This ETF targets the technology sector with three times (3x) leveraged exposure to the Technology Select Sector Index. It has amassed about $723.5 million in its asset base and charges 95 bps in fees per year. Volume is good as it exchanges around 201,000 shares a day on average (read: 4 Sector ETFs That Crushed S&P 500 in 9-Year Bull Run).

Direxion Daily Financial Bull 3x Shares (LON:FAS) – Up 4056%

This ETF provides three times exposure to the performance of the Russell 1000 Financial Services Index. The fund has amassed nearly $2.2 billion in its asset base and charges 95 bps in annual fees.

Direxion Daily S&P 500 Bull 3x Shares (BS:SPXL) – Up 3783%

This fund creates a triple leveraged long position in the S&P 500 index while charging 95 bps in fees a year. It has $1.1 billion in AUM and trades in volume of 3.1 million shares on average.

ProShares Ultra QQQ QLD – Up 3380%

This product offers twice (2x) the return of the daily performance of the Nasdaq-100 Index, charging 0.95% in annual fees. The fund has AUM of $1.8 billion and trades in solid average daily volume of 1.4 million shares.

Direxion Daily Small Cap Bull 3X Shares (HM:TNA) – Up 2687%

This ETF provides three times the return of the daily performance of the Russell 2000 Index and exchanges around 3.5 million shares in hand on average per day. The fund has AUM of $893.6 million and charges 95 bps in fees and expenses (read: Focus on Small-Cap ETFs Amid Trade War Fears).

Bottom Line

As a caveat, investors should note that these products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing — when combined with leverage — may make these products deviate significantly from the expected long-term performance figures (see: all Leveraged Equity ETFs here).

Still, for ETF investors who are bullish on the equity for the near term, any of these products can be an interesting choice 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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DIRX-LC BULL 3X (SPXL): ETF Research Reports

DIRX-SC BULL 3X (TNA): ETF Research Reports

PRO-ULTR QQQ (QLD): ETF Research Reports

DIR-FIN BULL 3X (FAS): ETF Research Reports

DIR-TEC BULL3X (TECL): ETF Research Reports

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Zacks Investment Research